Instacart, the popular grocery-delivery company officially known as Maplebear (ticker: CART), experienced a decline in its stock price below its IPO mark on Thursday. This fall is indicative of a broader trend affecting recently listed technology companies. Additionally, fresh data indicates that there may be more challenges on the horizon for Instacart.
Currently, Instacart is down 1.2% in premarket trading, with a value of $29.75 per share. This drop brings its stock price below the initial $30 per share price set during its IPO. Initially, investor enthusiasm had propelled the stock to a high of $42 on Tuesday.
Instacart’s situation is not unique, as other newly listed companies are also struggling to maintain their IPO prices. Leading chip-design firm Arm Holdings (ARM) is hovering just above its $51 IPO price, currently at $51.17 per share in the premarket. Another company, marketing-software firm Klaviyo (KVYO), is trading at $31.88, slightly higher than its $30 per share listing price set on Wednesday.
If we look at historical trends, stocks that fall below their IPO prices within the first week often continue to decline. Analysis of U.S. IPOs over the past five years reveals that these stocks, on average, dropped by 20% from their first-week lows over the following 12 months of trading. It is important to note that both Instacart and Arm’s considerable valuations in the billions of dollars do not shield them from potential challenges.
A similar scenario occurred with ride-hailing giant Uber Technologies (UBER) during its first week of trading in 2019 when it fell below its $45 per share listing price. Since then, Uber has struggled to recover, spending most of its time as a publicly traded company below that level, except for a brief surge during the peak of the Covid-19 pandemic. Recently, Uber has managed to surpass its IPO price once again. Another notable example is Robinhood Markets (HOOD), which fell on its first day of trading in 2021 and ended up losing a staggering 74% of its value over the next 12 months. Unfortunately, it has not shown any signs of reclaiming its initial levels since those early weeks of trading.
In conclusion, Instacart and other tech companies currently face challenges in maintaining their IPO prices and restoring investor confidence. While the multibillion-dollar valuations of these companies may seem promising, past trends indicate that they do not guarantee protection from market volatility.
Shaky Debut: Will Instacart’s IPO Price Drop Further?
While there’s no guarantee, historical data suggests that a drop in the IPO price doesn’t always spell doom for companies. In fact, a quarter of the companies that experienced this in the first week ended up rising in the following 12 months.
Taking a closer look at past examples, Meta Platforms (formerly known as Facebook) went public in 2012 at $38 per share. Initially, it suffered a drop and took over a year to recover. However, it has since demonstrated resilience by never again falling to its IPO price, despite experiencing occasional minor fluctuations. Today, Meta Platforms trades at an impressive $296 per share.
However, the recent surge in IPO listings might be threatened by the fragility of investor enthusiasm. The Federal Reserve’s announcement regarding potentially prolonged higher interest rates, alongside its latest monetary-policy decision, has cast doubt on hopes for rate cuts. Additionally, excitement surrounding artificial intelligence technology has been a significant driver for companies like Arm to go public at this time. However, a shift in investor sentiment could undermine these companies’ high valuations.
Nevertheless, this trend of IPO listings is likely to continue due to the backlog of delayed IPOs from the past 18 months. Companies such as Arm, Instacart, and Klaviyo have already successfully increased their initial pricing ranges, indicating a strong demand for new listings. According to Dave Sekera, chief U.S. market strategist at Morningstar Research Services, there is a high probability of witnessing a flood of IPOs in the coming months, particularly those associated with artificial intelligence.
As the IPO flood looms, investors must proceed with caution and carefully evaluate their options.