It's been a while since investors have had an opportunity to get excited about a tech sector initial public offering (IPO). That could be about to change.
Three tech companies filed to go public last week. But while their IPOs could stir enthusiasm among some investors, are any of the stocks worth buying?
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1. Arm Holdings
Arm Holdings ranks as arguably the most highly anticipated of the upcoming IPOs. This won't be the first time for the chipmaker to trade publicly. Arm was listed on the Nasdaq and the London stock exchanges from 1998 through 2016 until SoftBank took it private for $32 billion.
Nvidia attempted to acquire Arm last year. However, the proposed transaction ran into roadblocks with both U.S. and European regulators. Nvidia ultimately threw in the towel on the deal.
While Nvidia's graphics processing units (GPUs) are hot commodities in the AI market, Arm's central processing units (CPUs) dominate the smartphone market to an even greater extent. Over 99% of the smartphones across the world use Arm's CPUs. The company's chips are also used in Apple's laptops.
Arm believes that it has a big opportunity in artificial intelligence (AI), though. Its CPUs are already used in powering many AI apps. The company is working with several AI leaders, notably including Nvidia, Alphabet, and Meta Platforms, to deploy its technology in AI processing.
2. Instacart
Instacart is the world's largest online grocery service. The company has partnered with over 1,400 retailers that together make up more than 85% of the U.S. grocery market.
During the 12 months ending June 30, 2023, Instacart processed 263 million orders. It generated $29.4 billion in gross transaction value. And the company made $2.2 billion in gross profit.
Only around 12% of grocery sales are done online right now. Global consulting firm McKinsey, though, thinks that this online penetration could at least double.
Instacart hopes its IPO will enable it to raise the necessary capital to go after its big market opportunity. The company has already attracted one major investor. PepsiCo agreed to buy $175 million of Instacart's preferred stock in a private placement.
3. Klaviyo
Klaviyo provides a software platform that enables businesses to store and use data for targeted marketing via digital channels. It uses a subscription-based revenue model with tiered plans based on the number of active customer profiles and the number of emails and text messages sent.
The company isn't as well known as Arm or Instacart. But Klaviyo has built a base of over 130,000 customers since its founding in 2012. During the 12-month period ending June 30, 2023, it raked in revenue of more than $585 million, up nearly 57% year over year.
Klaviyo estimates its addressable market in the retail vertical totals over $16 billion. However, it also thinks there are significant opportunities to expand into other verticals, including education, events and entertainment, restaurants, and travel, that together represent an addressable U.S. market of $34 billion. Looking beyond just the U.S., Klaviyo projects that its total addressable market stands at $68 billion.
Any buys in the group?
It's possible that all of these forthcoming IPOs could be worthy of serious consideration by investors. However, there's one big issue that currently gets in the way of making a definitive call on any of them: We don't know what their valuations will be at this point.
For Arm to be valued at the $32 billion price tag it commanded when it went private a few years ago, its shares will have to trade at more than 60 times fiscal 2023 earnings and nearly 12 times sales. That might seem cheap when stacked up against Nvidia, but Arm is no Nvidia right now.
Instacart's business model is similar in some ways to DoorDash, although there are some key differences. If Instacart's price-to-sales multiple is in the same ballpark as DoorDash's, the company could be valued between $11 billion and $12 billion.
When Klaviyo last raised funds in May 2021, the effort pegged the company's valuation at $9.5 billion. That could be the general level to look forward to with Klaviyo's IPO.
There's no guarantee that Arm, Instacart, or Klaviryo will experience the explosive post-IPO pops that we've seen in the past with hot tech companies. But investors should stay tuned to find out what their IPO prices will be. There just might be a buying opportunity or two.
