IPO market shows market might be "Fundamentally Broken"

A look into how IPO Markets have fared so far in 2024.

Did Q1 IPOs live up to the hype? Or should we expect more in Q2? I discuss this below.

When looking at the market so far this year what stands out is the favorable bull market conditions headlined by chip giant Nvidia, and even though we haven’t received any rate cuts yet it still seems that Fed officials are all over the place on when we are actually gonna receive them. We saw March bring us surging job growth and rocky economic data that has led us to have the Fed Fund’s futures contracts pricing in cuts at 60 basis points. Bets are also being put on treasury yields as they hit the highest point since November, nearing 5%.

A quick look into VC shows deal count dropping but global M&A activity has picked up.

Looking at sector performance YTD we see the energy sector leading the pack up 17% YTD. This is expected as energy is always seen as a safe bet and rising oil prices have pushed energy stocks to highs. Following right behind is communications as they are up 14% YTD. Meta has helped push this up as they announced to return cash to investors issuing a first-time dividend and strong revenue guidance is boosting them up.

Even though the markets have shown strong signs so far, they are also showing signs of being fundamentally broken as IPO markets are still recovering from tough 2022 and 2023 years which gave us the worst IPO market conditions since the financial crisis. The S&P has hit highs this year but new companies looking to raise money are being stung by investors with the bearish bug.

Some IPOs we have seen this year:

Astera Labs (NASDAQ: ALAB) +12.72% Since Inception

Astera Labs, Inc. specializes in designing, manufacturing, and marketing semiconductor-based connectivity solutions tailored for cloud and AI infrastructure. The company's flagship product line, the Intelligent Connectivity Platform, encompasses a range of data, network, and memory connectivity solutions. These products are engineered with a unified software-defined architecture, facilitating seamless deployment and operation of high-performance cloud and AI infrastructure on a large scale.

Astera Labs surprised people when it popped 72% on it’s first day of trading but has since cooled down as valuations were a little inflated but investor appetite for AI hasn’t cooled. In 2023, Astera Labs experienced a significant sales increase, with revenue climbing by 45% to reach $115.8 million compared to $79.9 million in 2022. Additionally, the company made notable progress in reducing its losses, with a narrowed deficit of $26.3 million in 2023, marking a substantial improvement from the $58.3 million loss recorded in 2022. An analyst price target of $85 has been placed on the stock.

Reddit (NYSE: RDDT) -8.51% Since Inception

Reddit operates as a collection of forums, known as "subreddits," where users can share content, discuss various topics, and engage in community-driven conversations. Reddit's unique structure allows users to upvote or downvote posts and comments, which helps to determine their visibility and prominence within the platform.

The biggest question people had over Reddit was how they were making money. Reddit makes majority of their profit from advertising but this takes an opposite view of their users as they are known to frown upon any advertising or schilling on the platform. Their stock popped 48% on their debut but has since dropped with events like insider selloffs has made shareholders pessimistic on the future outlook of the company.

Amer Sports (NYSE: AS) +8.36% Since Inception

Amer Sports is the parent brand of Arc’teryx, Wilson and more. Amer engages in the design, production, marketing, distribution, and sale of sports equipment, apparel, footwear, and accessories across various regions including Europe, the Middle East, Africa, the Americas, China, and the Asia Pacific. The company operates through three primary segments: Technical Apparel, Outdoor Performance, and Ball & Racquet Sports.

Amer Sports has since performed since an underwhelming IPO as they only increased 3% YTD even after they discounted their IPO even lower than planned.

Overall I see the IPO markets gaining more traction in 2024 as macroeconomic conditions become more favorable and investors who have been holding positions in these private companies, seek an exit.