Yahoo Finance Forget Profits, IPO Investors Are Paying Up for Revenue Growth
(Bloomberg) -- Investors are so hungry for initial public offerings to rebound that they are once again willing to sacrifice profit for revenue growth — and have set aside money for the privilege of participating.
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Those were some of the key takeaways from a recent survey by Blueshirt Group, which advises companies on going public. Although most of the money managers Blueshirt polled said they want IPO candidates to show they can generate profits by 2026, they ranked growth as the top priority.
“Investors are hungry for IPOs,” said said Alex Wellins, Blueshirt’s co-founder and managing partner. “In internet and software there are very few public companies guiding to above 25% to 30% growth. The only way to get growth back in the public markets is through IPOs.”
IPOs have been trending in a positive direction, but are still far below historical norms. The market seized up in 2022 largely because of stress in the tech sector and higher interest rates, which were a death knell for many fast-growing, money-losing companies whose underlying businesses were not sustainable.
From then to now, investors had shifted their emphasis to profitability over growth. Wall Street underwriters have recently escorted some large, established companies into the stock market, but almost none that were losing money. Blueshirt’s survey indicates that the tide may be turning — at least in terms of investor demand.
The firm polled more than 60 of the top US institutional investors, nearly all of whom said they want IPOs to come back. Roughly $20 billion has been raised on US exchanges through June 19, which is almost double last year’s showing but just one-fifth of 2019’s pre-pandemic level over comparable periods.
More Cash Ready
Unlike last year, the investors said they have more capital to allocate to IPOs. And unlike past times, they do not necessarily need the security blanket of “cornerstone” investors that commit large sums to an IPO before it launches in order to participate.
“There was a big backlash to cornerstones and that is reflected in zero this year,” said Wellins. “Historically cornerstones have been used on less than 25% of tech IPOs.”
The IPO market has had its stops and starts this year. UL Solutions Inc. and Viking Holdings Ltd. showcased strength for larger offerings while a smattering of others trade poorly or were pulled before selling shares.
There were also bright spots in the technology sector for big names like Reddit Inc. and Astera Labs Inc. which have soared more than 75% from their March debuts. But others like Ibotta Inc., which has lost 18% since going public in April, and Rubrik Inc., down about 4% from its April IPO, have shown that not all high-profile tech new issues continue to perform well after the first day.
None of this year’s tech debuts used cornerstones, while all of 2023’s offerings had them, according to Blueshirt.
Multiple companies are considering going public soon. Ingram Micro Inc. and Lineage Logistics are among the companies those that could pursue IPOs before the end of the current quarter, Bloomberg News has reported. Ardent Health and OneStream are other names to look for in the coming months.
Even so, Blueshirt does not expect a major pick-up in deal activity until next year — and perhaps even 2026.
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