By Ciara Linnane
After their IPOs failed in the aftermarket, the companies’ initial earnings reports also missed the mark
Initially, their IPOs failed in the days following their debuts. Now their returns are disappointing.
This week’s earnings from three companies that recently went public — chip designer Arm Holdings PLC (ARM), grocery delivery app Instacart (CART) and digital advertising company Klaviyo Inc. (KVYO) — remained at one point or otherwise underperform expectations to put new pressure on prices that are below or just above their IPO price level.
The moves are unlikely to assuage the concerns of investors who have been skeptical about the IPO market recently.
“It’s no surprise that Arm, Instacart and Klaviyo are reporting disappointing earnings results,” said David Trainer, CEO of independent equity research firm New Constructs. The company uses machine learning and natural language processing to analyze corporate records and model economic returns, although its research has faced resistance.
“These companies went public with stretched valuations,” Trainer said. “Investors should avoid investing in stocks with such high valuations. Just because a company goes public doesn’t mean it’s a good investment. Remember, Wall Street tried to take WeWork public at a $47 billion valuation, and its equity is worth $0 today.”
Now watch: WeWork files for bankruptcy, capping a stunning downfall
The biggest deal of the three was Arm’s, which was widely anticipated after a spate of such offers and touted as a test of appetite for big tech deals.
The stock posted strong gains on its first day of trading, but saw those gains fade over the next few trading days. The chipmaker raised $4.87 billion by pricing its deal at $51, the highest price at a valuation of $52.5 billion. The stock last traded at $51.12, down 6% on the day and down 0.1% early Friday.
Arm reported earnings on Wednesday, showing a loss of $110 million, or 11 cents per share, in its fiscal second quarter, while the company earned $114 million, or 11 cents per share, in the year-ago quarter. On an adjusted basis, Arm posted earnings per share of 36 cents, compared with the FactSet consensus of 26 cents.
Total revenue rose to $803 million from $630 million, while analysts had expected $740 million.
But its third-quarter guidance, which called for revenue of $720 million to $800 million and adjusted earnings per share of 21 cents to 28 cents, disappointed investors and fell short in the middle. The FactSet consensus was for revenue of $776 million and adjusted earnings per share of 27 cents.
Bearish on Maplebear
Instacart, which operates under the name Maplebear, also disappointed with its first earnings since going public on Wednesday.
The company reported a loss of nearly $2 billion, even as its revenue beat expectations and the company forecast “mid-single-digit” growth in the total value of transactions on its platform.
Instacart reported a third-quarter net loss of $1.99 billion, or $20.86 per share, due to what the company said was “significantly increased” stock-based compensation during the IPO. Revenue rose 14% to $764 million.
Analysts surveyed by FactSet expected a GAAP loss per share of 15.07 cents on revenue of $737 million.
Instacart went public in September at $30 a share with a valuation of $10 billion, rising 40% in the first few hours of trading before retreating with a closing gain of 12%. The stock last traded at $24.78, down 9% on the day, and has been trading below its issue price since September 25, just five days after the IPO.
Now Read: Instacart IPO: 5 things to know about the app that aims to drive a “massive digital transformation” in grocery shopping
Klaviyo went public in September at $30, or a valuation of about $9 billion, and also saw a strong rise of 22.5% in the first few hours of trading before ending up just 9%.
That company posted earnings earlier this week that showed losses widening and sales forecasts that left no room for outperformance.
The stock was last down 5% at 26.13.
The most recent deal to disappoint was that of German sandal and clog maker Birkenstock Holdings Plc (BIRK), which has yet to reach its IPO issue price of $46. The stock closed at $39.90 on Thursday, down 5.5% on the day.
Birkenstock’s IPO was one of the worst debuts for a billion-dollar deal in the last decade, according to Renaissance Capital, a provider of IPO exchange-traded funds and institutional research. The stock ended its first day of trading down 12.9% and was down 21% by the end of the week.
Of the 95 IPOs that raised at least $1 billion over the past decade, only five performed worse than Birkenstock on the first day of trading. The deal was the worst since AppLovin (APP) in April 2021, which ended its first day of trading down 18.5%.
“Larger IPOs generally have less risk of immediate failure: Only 20% of multi-billion dollar IPOs over the last decade closed negative on the first day, compared to 27% for all IPOs,” Smith wrote in a recent commentary.
Further information can be found here: Birkenstock shares fall by almost 13% on their stock market debut and end well below the IPO price
Analysts began covering Birkenstock this week, mostly issuing buy recommendations.
But New Constructs’ trainer was critical of the valuation even before the deal hit the market. The analyst noted in early October that the terms he set would mean the company would have a larger market capitalization than rivals such as Skechers (SKX), Crocs (CROX) and Steve Madden (SHOO).
That would make Nike (NKE) and Uggs maker Deckers Outdoor (DECK) the only shoe companies with larger market capitalizations. To justify this, Birkenstock would have to generate annual sales of more than $3.8 billion, more than three times the $1.24 billion projected for all of 2022.
“We do not expect this to happen any time soon, if ever,” the analyst said.
For more information, see: Birkenstock’s valuation is too high and investors may not make money from the IPO, an analyst says
The Renaissance IPO ETF has gained 26% year to date, while the S&P 500 SPX has gained 14%.
– Ciara Linnane
This content was created by MarketWatch, operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
11-11-23 0919ET
Copyright (c) 2023 Dow Jones & Company, Inc.
Comments are closed.