It was astounding to see the effect that a single year had on global markets in 2022. After the previous year's market optimism and a surge of IPOs had quickly dissipated, businesses throughout the world were met with a year of harsh economic conditions and caution among those that were looking to go public.
Only 37 companies went public last year and raised a meager $7 billion, the lowest amount recorded since 1990, as reported by Barron’s. This was due to the Federal Reserve’s forceful increase in interest rates to reduce rampant inflation, which caused the stock market to decline throughout the year and had a negative effect on even the most solid businesses.
Despite the dismal performance of stocks in the previous year and a near-shutdown of IPOs, there is hope that 2023 may bring a better outcome. With the possibility of the market improving after a recession, valuations may also increase, thus incentivizing companies to go public. Porsche's IPO in September 2022 is an example of success in spite of challenging times.
Here are seven hot companies that may conduct their IPO in 2023.
1. Stripe IPO
Stripe, a payments processing business for e-commerce, has benefited from the surge in online shopping due to the pandemic. The company has been backed by prominent venture capital firms such as Andreesen Horowitz, Kleiner Perkins, and Sequoia Capital, and attained a peak valuation of $95 billion in 2021. In July, Stripe initially reduced its valuation by 28%, from $95 billion to $74 billion. Subsequently, according to The Information, Stripe further reduced this valuation to $63 billion in January 2023.
2. Reddit IPO
Often referred to as the "front page of the internet", Reddit is an online social media platform. It is composed of user-generated content and allows users to share, discuss, and upvote content. In 2021, the site was central to the meteoric rise of GameStop stock, when traders from the platform propelled the stock's value skywards. Following an injection of $400 million from Fidelity Investments in August 2021, Reddit was valued at $10 billion in its last funding round. According to sources familiar with the matter, the company is expected to go public during the second half of this year.
3. Instacart IPO
Instacart, which had an estimated valuation in the tens of billions of dollars, experienced tremendous success over the past few years, especially when its primary service – home delivery of groceries and other products – became a necessity for anxious and cautious customers during the pandemic. In March 2021, a funding round valued the company at $39 billion and was backed by renowned venture capitalists such as Andreessen Horowitz. Unfortunately, due to certain internal concerns, Instacart has reportedly reduced its valuation to $10 billion as of January 2023.
4. Discord IPO
Discord, a platform similar to Slack or Microsoft Teams, has seen enormous growth in its monthly active users. The platform had 56 million users in 2019 and this number rose to 150 million by the end of 2021. Discord rejected a $10 billion offer from Microsoft, as well as offers from Twitter and Amazon, in 2021, opting to go public via an initial public offering. In September 2021, Discord secured $500 million in funding, increasing its valuation to $15 billion.
5. Databricks IPO
Databricks is a tech unicorn, the cloud-based data infrastructure company had a 2021 valuation of $38 billion, but this was lowered to $31 billion in October 2022. Major competitors include Snowflake and Confluent, both of which have already gone public. Databricks is backed by prominent investors, such as Andreesen Horowitz, BlackRock, Tiger Global, and Fidelity.
6. ARM IPO
ARM Holdings, a British multinational semiconductor and software design company, has a global reach, with its products impacting the lives of 70% of the public. In 2016, SoftBank Group purchased ARM for $32 billion. In 2020, the chip giant Nvidia Corp. (NVDA) nearly acquired ARM, however, the company has since flourished independently. During its most recent quarter, ARM earned $656 million in revenues and experienced a 9% increase in microchips shipped.
In conclusion, the global markets experienced a difficult year in 2022, but this may be followed by an improved outlook in 2023. When the general economic outlook is positive and investors are enthusiastic, the IPO market is booming. However, in a gloomy economic climate, businesses tend to be more cautious and postpone their IPOs, particularly those large-scale offerings that need intense investor faith. Companies will be encouraged to go public as the market stabilizes and valuations increase, and success stories such as Porsche's IPO in September of 2022 will continue to inspire investors.