After Lackluster IPOs, Can Arm, Instacart, And Klaviyo Take A Page From Facebook's 2012 Playbook?

The market debut of British chip designer Arm Holdings ARM was the biggest IPO of the year, at a valuation of at $54.5 billion. Yet shares of the company have fallen consistently throughout the week and closed at $52.16 on Thursday.

The company has been key in the development of Nvidia Inc's NVDA artificial intelligence chips, and is still 90% owned by giant Japanese investment holding SoftBank, which put only 10% out for the public offering.

The slide in Arm shares began with a gloomy analysis by Bernstein Research, which gave the company an Underperform rating and a $46 price target on Monday.

Read also: Is ARM Holdings Stock Going To Pay Dividends?

Grocery delivery app Instacart CART is experiencing a similar phenomenon. The company debuted on Tuesday with an IPO price of $30 and opened at $42, jumping 40% from its initial price. Yet just two days later, shares closed at $30.65 on Thursday.

Needham & Company analyst Bernie McTernan initiated coverage with a lukewarm Hold rating and did not set a price target. The analyst is cautious as Instacart faces uncertainty over the future of online grocery shopping as well as competition from Uber UBER, DoorDash DASH, Walmart WMT and Amazon AMZN.

Shares of marketing automation firm Klaviyo KVYO, which debuted on Wednesday with a price of $37 at market open after an IPO price of $30, quickly declined during its first day closed at $33.72 on Thursday.

The poor performance of these tech IPOs are making investors and analysts doubt whether market conditions have improved sufficiently for a return to high-stakes IPOs, after several quarters of an IPO dry spell. 

IPOs have slowed down in a scenario of economic uncertainty marked by inflation and rising interest rates. The Fed is expected to maintain a decades-high federal funds rate in its next FOMC meeting, and could even add another hike before the end of the year.

In some cases, geopolitical instability adds to investor weariness. Arm makes about 25% of its revenue from China, a country that large companies have begun to pull away from in the wake of recent tensions concerning a battle for technological supremacy with the U.S. that has led to increasingly aggressive rhetoric.

What can Facebook teach us? Meta Platforms META, formerly known as Facebook, debuted on May 18, 2012 at $38. It opened at $42 and peaked at $45 on its first trading day, but volatility was high, and the company closed at $38.2, barely above its IPO price.

The social media giant tanked to a low of $25.5 on June 6 of that same year, only two weeks after its IPO. 

Today, Meta shares are worth almost $300. This example shows how an initial price drop after an IPO is no guarantee for a bad trajectory in the future. Other variables including market conditions and real performance in company fundamentals should be considered when analyzing the future performance of a stock.

Now Read: The Biggest IPOs Of All Time — And 5 Recent Success Stories

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