SoftBank's Arm soared nearly 25% on its first day of listing, with a valuation of US$6.5 billion


Arm CEO Rene Haas at the Nasdaq Market in New York

Arm CEO Rene Haas witnessed SoftBank's chip design company Arm holding an initial public offering (IPO) on the Nasdaq market in New York, the United States, on September 14, 2023.

Shares of SoftBank's Arm Holdings soared nearly 25% from their Nasdaq listing price on Thursday, reigniting investor hopes that the struggling company could turn around. market For initial public offerings (IPOs).

this in stockOpening at $56.10, it rose 24.68% to close at $63.59. The British chip design company was valued at $65 billion when it returned to the public market. marketThis was after a seven-year absence. The IPO price is $51.

Arm's strong performance suggests investor demand for initial public offerings, which has been hammered over the past two years by geopolitical tensions and rising interest rates, may be rebounding. market participants said.

read: U.S. IPO market expected to end strong in 2023 amid flurry of listing activity

“This is a successful IPO,” said Salman Malik, a partner at Anson Funds in Toronto. “This will have a positive impact on the IPO pipeline and show that the AI ​​theme is dynamic.”

Several companies plan to go public in the coming weeks, including grocery delivery service Instacart, German footwear maker Birkenin stockand marketING automation platform Klaviyo.

If these IPOs succeed, they could spark a wave of activity in stock market Bankers and analysts say it will launch in 2024.

read: Wall Street bosses see deal drought easing as IPOs spur optimism

Arm priced its IPO at $54.5 billion on Wednesday, valuing the company at $54.5 billion. marketWithin the editorial scope, SoftBank made a net profit of US$4.87 billion, but still holds 90.6% of the shares.

The Japanese investment giant took Arm private in 2016 for $32 billion. The company has been looking to cash in some of its stake since at least 2020, when it agreed to sell Arm to chipmaker Nvidia for $40 billion. It had to abandon the plan due to regulatory hurdles.

It has since pivoted to an initial public offering, although that has brought its own obstacles, including a conflict with the British government, which is seeking to list the chip designer in London.

read: SoftBank acquires ARM Holdings for $31B

Despite Thursday's strong performance, Arm's debut marks a decline in its valuation from $64 billion last month, when SoftBank bought a 25% stake it didn't directly own from its Vision Fund unit.

But this has not dampened SoftBank CEO Masayoshi Son's enthusiasm for Arm, Jason Child, chief financial officer of the chip design company, said in an interview on Thursday.

“He is very bullish on this company. The price today or even in the near future is not his focus, the focus is what the price will be in the future.

Arm is integral to the technology hardware ecosystem because its chip designs power nearly every smartphone in the world. The company revealed last month that annual revenue fell 1% at its two largest companies. markets — smartphones and personal computers — plummeted.

Child said Arm can still boost sales because it charges a 5% royalty on chips made with the latest technology, compared with 3% for previous versions. High-end phones are more likely to use Arm's most advanced technology.

Some bankers involved in the IPO said the closest valuation to Arm was circuit design company Cadence Design Systems. Cadence's price-to-earnings ratio is 35 times 2025 earnings, while Arm's price-to-earnings ratio is $51 per share and its price-to-earnings ratio is 29 times.

'humble'

Last year, investors began to focus more on profitability, steering clear of cash-burning startups that commanded lofty valuations amid record trading in 2021.

An analysis of London Stock Exchange data as of Friday showed that the 10 largest U.S. IPOs over the past four years had fallen an average of 47% from their first-day closing prices.

Investors who bought into high-profile listings during intraday price spikes fared worse, with an average loss of 53%.

Jordan Stuart, portfolio manager at Federated Hermes, said: “The deal is priced within its range, which tells me investors are price sensitive and the board and investment banks are showing a bit of humility.”

While Arm's strong debut may encourage other technology companies to move forward with IPOs, it doesn't mean a return to bubble status market In 2021, Stewart said.

Sectors such as biotech may remain dormant for the next one to two years until interest rates start to fall, allowing in stockRelative to bonds, he said, it's more attractive.

“You’re not only going to see investor insights, but you’re also going to see some industries that are not included in the market at all. market Until the interest rate regime changes.

Nasdaq Index

Arm's debut also brings potential impetus to future revenue growth for Nasdaq, which won the listing.

Analysts say big deals like Arm provide short-term publicity for Nasdaq and are long-term bets to increase the recurring revenue the exchange collects from annual listing fees.


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“Whenever Nasdaq acquires a new listed company, it can increase revenue not only through the listing but also through other services sold to these listed companies on the exchange,” said Managing Director and Senior said fintech company Andrew Bond.





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