In its first day of trading on the Nasdaq on Thursday, shares of SoftBank’s Arm Holdings (ARM.O) rocketed about 25 percent above their offer price, giving the British chip designer a market capitalization of $65 billion in its first appearance on the public markets in seven years.
The price of one American Depositary Share was $51 during the initial public offering (IPO), but the stock ended the day at $63.59, representing a gain of 24.68%. The opening price for the stock was $56.10 per share.
The rise on the first day is a positive sign for companies waiting to list after the initial public offering (IPO) market crashed due to the conflict in Ukraine and the interest rate hikes implemented by the Federal Reserve.
“This pop can get people more excited about the IPO market for the rest of this year and going into 2024,” said Owen Lau, a senior analyst at Oppenheimer & Co.
In the coming weeks, well-known companies, including the grocery delivery service Instacart, the German footwear manufacturer Birkenstock, and the marketing automation platform Klaviyo, are getting ready to launch their initial public offerings. Bankers and experts believe that if these initial public offerings are successful, they will likely set off a wave of new stock market listings in 2024.
“The Arm IPO is the most hyped listing we’ve had in the markets for a while,” said Kyle Rodda, senior market analyst at the trading firm Capital.com. “The Arm IPO is the most hyped listing we’ve had in the markets for a while.”
“It will also be a major test of risk appetite and whether or not these high-growth, speculative companies still attract interest in a new world of higher interest rates.”
After pricing its initial public offering (IPO) at the high end of the range offered, Arm achieved a valuation of $54.5 billion on Wednesday. This resulted in a profit of $4.87 billion for SoftBank (9984.T), which still maintains a 90.6% interest in the company.
In 2016, the Japanese investment giant paid $32 billion to acquire Arm and take it private. Since at least 2020, when it agreed to sell Arm to chipmaker Nvidia (NVDA.O) in a deal worth $40 billion, it has been aiming to cash out some of its interest in the company. Because of the regulatory hurdles, they were forced to abandon that proposal.
Since then, it has shifted its focus toward an initial public offering (IPO) even though this new direction has brought new challenges. These challenges include run-ins with the British government, which was lobbying for the chip designer to list in London.
Arm’s debut indicates a climb-down from the $64 billion it was valued at last month when SoftBank bought the 25% part of Arm it did not directly own via its Vision Fund unit. Despite a great showing on Thursday, Arm’s debut descends from that $64 billion valuation.
However, the Chief Executive Officer of SoftBank, Masayoshi Son, remains enthusiastic about Arm, as stated by the Chief Financial Officer of the chip designer, Jason Child, in an interview on Thursday.
He has a very optimistic outlook on the company. The price right now, or even shortly, is not the center of his attention; rather, he is concerned about where the price will be.
Arm is vital to the global tech hardware ecosystem because its chip designs are used in almost all smartphones. It revealed a month ago that its yearly revenue had decreased by 1% due to a decline in both the smartphone and personal computer industries, which are its two largest markets.
Child stated that Arm still can increase revenues because the company received a royalty rate of 5% on chips manufactured with the most recent technology, as opposed to a rate of 3% with the older version. It is more likely that the most cutting-edge technology from Arm will be used in premium phones.
The word “HUMILIATION.”
Over the past year, investors have begun to place a greater emphasis on profitability. As a result, they have shied away from cash-burning firms that, in 2021, had fetched stratospheric valuations based on a record year for acquisitions.
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According to a study of data from LSEG that was completed on Friday, the ten initial public offerings (IPOs) in the United States that have been the most successful over the previous four years have seen an average decline of 47% from the price at which they closed on their first day of trading.
Investors who bought at the peak of an intra-day price rise, which frequently takes place in high-profile listings, would have done even worse, with an average loss of 53% on their investment. This type of price increase is common in high-profile listings.
“The deal was priced within its range, which tells me that investors are price sensitive and boards and investment banks are showing a little bit of humility,” said Jordan Stuart, a portfolio manager at Federated Hermes. “The fact that the deal was priced within its range tells me that investors are price sensitive and boards and investment banks are showing a little bit of humility.”
According to Stuart, even while Arm’s successful IPO is likely to encourage other technology companies to follow forward with their initial public offerings (IPOs), it does not likely presage a return to the overheated market that existed in 2021.
According to him, certain industries, such as biotechnology, are likely to remain inactive for the next one to two years until interest rates begin to decline, making equities more appealing compared to bonds.
“Not only will you notice a discernment among investors, but you will also notice that certain sectors will remain completely absent from the market until the rate regime changes,”
NASDAQ SCORES
The launch of Arm also provides the Nasdaq (NDAQ.O), which was awarded the listing, with the opportunity for a potential boost to future revenue growth.
According to the opinions of market analysts, large acquisitions such as the one with Arm give the Nasdaq attention in the short term and are a long-term bet to improve the recurrent money the exchange earns through annual listing fees.
According to Andrew Bond, managing director and senior fintech analyst at Rosenblatt Securities, “Every time it (Nasdaq) gets a new listed company, it’s able to drive revenue not just through the listing, but also through the other services that it sells to these listed companies on their exchange.”
