Mediterranean fast-casual restaurant Cava and second-hand retailer Savers Value Village are two of the more prominent members of the IPO class of 2023. Despite interest re-entering the IPO market within the past month, the "floodgates [aren't] quite ready to open up" as Wall Street Horizon VP of Research Christine Short described to Yahoo Finance Live. Short went on to comment on the outlook of the SPAC market.
[AUDIO LOGO] - Recent initial public offerings have caused a surge of excitement on Wall Street.
The previously stagnant market for listing has been reinvigorated by the likes of Value Village, CAVA, and Kodiak gas services.
And more names are rumored to join them, like Instacart and VinFast, as well as Stripe.
Companies had been reticent to come to market, thanks in part to aggressive central bank policy, economic uncertainty, and, of course, a geopolitical risk weighing on sentiment, Russia's invasion of Ukraine, and pressures both internally and globally resulted in the IPO market settling down into an 18-month hibernation.
You can see it there on your screen, that's according to data from Wall Street Horizon.
Let's bring in Wall Street Horizon VP of Research Christine Short to help break it all down.
Christine, great to see you here.
Just give us the skinny on the IPO market.
CHRISTINE SHORT: I don't know that I'd go as far to say that.
I would say the drought is over.
You pointed to some IPOs that happened in the second quarter that got people really excited, including CAVA Group, Savers Value Village, KENVUE So the drought is over, but I wouldn't say the floodgates are ready to open up.
Certainly not this summer.
It tends to be pretty quiet in August.
Sure.
You're starting to see some things percolate.
Like you said, the environment has a lot to do with it.
There's still indication that there's another raise or two towards the end of the year.
We know that's highly correlated with whether or not people will go public or companies will go public.
Also, economic uncertainty.
And I think the jury's still out there.
We're getting some clues this earnings season to see how CEOs feel.
But I don't think anyone is saying right now that there's not a recession on the horizon, that everything's kind of in the clear.
But, again, we kind of took our cues from the M&A market.
And we've seen that pick up a bit.
And so that's a great bellwether for the IPO market.
But certainly, again, I wouldn't say there's going to be a boom towards the end of the year.
But there is some excitement coming up.
And you mentioned a bunch of the names that have been rumored.
- Yes.
CHRISTINE SHORT: I throw Chime in there, Stripe, so there's Birkenstocks.
So there's things happening for sure.
- There are things happening.
I was down at the New York Stock Exchange on the CAVA IPO date, haven't seen that many people in a long time, so it's nice to see that activity.
But some of these names that we're talking about that have not IPO just yet, Stripe is one that comes to mind.
I was talking about that in 2019, 2020, and 2021.
If they didn't go back then, why should they go now?
And I know that kind of depends on each company's particular situation, but is the environment finally conducive enough, a little bit less scary than it was, maybe, a few months ago for some of these bigger names to finally come to market?
CHRISTINE SHORT: Right.
And throw Instacart in there well, right?
As well.
We've been expecting them to IPO since 2022.
And so these rumors are ongoing, and we're not quite sure if they're going to come to fruition.
I do think, look, it's been dry for the last 18 months.
I think we're in a place where we're getting more clarity in the IPO market, you know, perhaps, it's a better time to debut now than it was maybe six months ago or even a year ago.
When I say it's a prime opportunity-- opportunity, I'm not sure.
I'd like to see what's ahead in 2024.
So I think a lot of these companies might not make it this year, might want to see what's on the horizon, see what happens next year.
But, again, more excitement this week.
You've got ODDITY tech debuting on the NASDAQ on Wednesday.
They just raised their price range, $32 to $34 a share.
I think it was previously $27 to $30.
So, again, there's things that people are getting excited about.
Chime and Stripe, those are such huge right now, like, Stripe $55 billion, Chime $10, $20 billion.
These are huge public offerings.
So, again, are they going to wait till the environment is a little more ideal?
I think that's possible.
- You know, and when we talk about new listings, SPAC is something that we have to discuss too that falls into that bucket.
If we can take up the-- if we can take the Wi-Fi interactive right now, I have this chart that shows of about 2,000 or 1,200 different listings for SPACs.
562 are still seeking a target.
And that's based off of some comprehensive data.
I got from Bloomberg and Yahoo Finances of those that have completed deals only 324.
And so a lot of investors probably going to be looking to get their money back because the two-year time limit that a lot of these SPACs were tied to, to spend the money is just-- it's evaporating right now.
So where do you see the SPAC market from where you're sitting?
CHRISTINE SHORT: Yeah, we track this back data very closely.
Obviously, in 2020 and 2021.
And they were outweighing traditional IPOs.
And so we saw numbers of SPACs just soaring.
And then, of course, as over the last, again, 18 months, we've seen that completely reverse.
You almost don't hear about SPACs as much anymore.
The data has gone so far down.
And so, traditional IPOs, when we hear about announcements, not that there's been so many, but certainly they outweigh SPACs, and I don't foresee that flip-flopping again any time soon.
- And what about some of the mix of issues here?
I've seen some oil and gas deals.
That's not something that we're seeing heavily promoted in 2021.
A lot of those were just growth-- high growth companies that didn't have a lot of revenue.
But we're seeing-- I would say the companies that have come out over the last year tend to be stronger than most, and so, probably have better balance sheets.
I'm just wondering what trends you've noticed when you take a look at some of the IPOs that are finally coming to market here?
CHRISTINE SHORT: Yeah, I mean, just to talk about the three we discussed at earlier, I'm seeing a lot in the consumer space, and I think it says a lot about what the consumer is thinking right now, the health of the consumer.
So just to take KENVUE, CAVA, Savers Value Village.
I mean, look, KENVUE, when they came out in May, the stock popped 20% after IPO, it's now down 7% versus CAVA and Savers Value Village.
CAVA, again, fast casual.
Their stock's up about 7% since the IPO last month.
Savers Value Village, up about 3% since they IPO maybe three weeks ago.
And I, kind of, looked at these three together, and I thought, OK. KENVUE's consumer staples, they divested from Johnson & Johnson It's brands like Listerine, Band-Aid, all the brand name wellness beauty products that you come to know as associated with Johnson & Johnson.
But that stock has dropped, and I think it's because you're seeing the consumer trade down to store brands to those often more value brands versus CAVA.
We've seen, again, you talked about airlines, and I put this in kind of in the same leisure group.
But fast casual, CAVA restaurants have been doing incredibly well, so we've seen that stock perform based off of that, and then, Savers Value Village.
This is a relatively new category secondhand retail is really picking up.
I think people are coming around to that as an option.
And especially, as they're trading down with accessories and apparel, and we're seeing bargain discount stores like Burlington, Coat Factory, TJ Maxx benefit from this as well.
So I think it's interesting to see what consumer IPOs have done well in this environment, and which have maybe backed off a little bit.
- Yeah.
And just looking out on the horizon, anything else catching your interest with respect to the IPO market you'd like to highlight right now.
CHRISTINE SHORT: You know, I think, right now, we're all focused on earnings season.
And I think that's going to give us a good idea of what the environment is like, and whether or not the market jitters have, kind of, calmed down.
What's on the horizon for the economy.
It depends a lot on what the CEOs say.
And I think a lot of potential public offerings, those companies that are thinking about going public either this year or next year are going to be listening to those calls to, kind of, decipher whether or not now is a good time or not.
So we'll be listening to those calls.
Started off pretty well last week.
The banks seem to be resilient.
But I would say a lot of the commentary from CEO was still focused on uncertainty.
Of course, this week, we get investment banks.
So we'll see what they have to say about the current environment.
And then the regional banks, is the banking contagion that we saw in March, is that over?
So I think a lot of potential companies looking to go public will be listening to what those banks have to say.
- Yes.
And we're going to be listening to those earnings transcripts and calls right here at Yahoo Finance as well.
Thank you for that, Christine Short, Wall Street Horizon VP of research.
