Arm’s initial public offering is set to be the biggest of the year and it’s shaping up to be a major test of investor appetite.
There has been a downbeat mood around the IPO market this year, but most companies have managed to price well enough to achieve a first-day rise. The average first-day increase in value for Nasdaq IPOs this year has been 17% , however, it has soon dissipated. The average in the first week of trading was a 7.4% fall, and the average first-month performance was a 6.9% drop, according to Dow Jones Market Data.
The few technology companies that have listed on the Nasdaq this year, as Arm intends to, don’t necessarily set an encouraging example. Arm is much larger and has a much more important role in the tech ecosystem than any other company that has listed this year but it could still face skepticism. The valuation that Arm’s owner SoftBank is seeking is a hefty one, with its range indicating a trailing price-to-earnings multiple of 92 to 100 times. That could make it a tough ask for Arm to deliver the typical ‘IPO pop’ –the first-day rise in price expected by the big investors who buy the bulk of shares in an IPO.