Instacart $30 IPO in 2025 and Arm $51 IPO: Are These Blockbusters Signaling an IPO Market Revival?

The recent blockbuster IPOs of Instacart-owner Maplebear (ticker: CART) at $30 per share and Arm Holdings (ARM) at $51 per share have sparked conversations about a possible revival in the sluggish initial public offering (IPO) market. Despite this excitement, caution remains warranted due to ongoing economic headwinds.

According to a Goldman Sachs report, the global IPO market has faced significant challenges amid rising interest rates and market uncertainties, resulting in proceeds and returns that fall well below pre-pandemic levels.

Key Insights

• Higher borrowing costs have suppressed demand for U.S. IPOs, which have not surpassed 25 offerings in any quarter over the past six quarters.
• Since the pandemic, companies going public have generally underperformed, trailing the Russell 3000 by 48 percentage points over a 12-month span.
• With interest rates expected to stay elevated, a sluggish IPO market may persist in the near term.

Economic Factors Behind the Tepid IPO Activity

Global IPO activity has slowed considerably since central banks initiated interest rate hikes last year to combat decades-high inflation. Increased borrowing costs and tighter financial conditions have led to reduced corporate lending and more cautious investor behavior. The S&P 500 entered a bear market last year, and IPO issuance dropped sharply after the record-breaking surge seen during the early pandemic years.

In the U.S., IPO counts have remained below 25 per quarter since early 2023, a steep decline from 84 IPOs in Q4 2021 and 118 in Q2 2021, as reported by KPMG. The first half of 2024 saw 63 IPOs, compared to 416 throughout 2021.

Capital raised through IPOs has also shrunk dramatically. The latest quarter ending June 2024 generated $6.6 billion in proceeds, up from a low of $1.2 billion in Q4 2023 but far below the $40.7 billion peak in Q2 2021.

Instacart and Arm's Impressive Market Entries Amid Lingering Challenges

Instacart’s shares soared over 40% to $42 in their Nasdaq debut after pricing at the top of the $30 range. Similarly, Arm’s American Depositary Shares (ADS) surged nearly 25% to about $63 after pricing at $51, marking the largest U.S. IPO since 2021.

Despite these successes, the prospect of sustained high interest rates suggests the IPO market could revert to its prior sluggish state in coming months.

Should Retail Investors Approach IPOs Cautiously?

Post-pandemic IPOs have generally underperformed broader markets, with only 18% outperforming the Russell 3000 within a year, according to Goldman Sachs. Retail investors often face challenges in accessing IPO shares, as the majority are allocated to institutional and high-net-worth investors.

Highly anticipated IPOs tend to be oversubscribed, with large investors competing for limited shares. For example, SoftBank retains a 90.6% stake in Arm, leaving less than 10% available to public investors. Major tech clients like Apple, Amazon, and Nvidia have expressed significant interest in Arm’s stock, collectively aiming to purchase up to $735 million.

Similarly, institutional investors including Norges Bank, TCV, Sequoia Capital, D1 Capital Partners, and Valiant Capital Management sought to acquire up to $400 million in Instacart shares.

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