Morgan Stanley: Up to 15 more tech companies expected to go public by the end of the year, and next year will be a "better year"
After a long wait, "the IPO market is back." That's according to Colin Stewart, global head of technology equity capital markets at Morgan Stanley. In an interview on Monday, Stewart said that there may be another 10 to 15 tech companies going public by the end of 2024, and 2025 will be "a better year."
"It's been a long two and a half years, and we really have nothing," Stewart noted. He added that recent IPOs have been priced high and traded well, which "bodes well for the future."
The calm began in 2022, when soaring inflation and rising interest rates forced investors to flee risks, tech stock valuations fell sharply, and many tech companies postponed their plans to go public. This is in stark contrast to the previous two years, which saw a record number of transactions, some of which were valued at astronomical figures.
The IPO market picked up again in September last year with the listings of Instacart (CART.US) and Klaviyo (KVYO.US). But the first real signs of recovery momentum came last month, when Reddit (RDDT.US) became the first large-scale social media company IPO since Pinterest (PINS.US) in 2019, and data center connectivity chip company Astera Labs (ALAB.US) surged more than 70% on its first day of trading. Both stocks are now trading well above their IPO prices. Astera's shares have risen about 145% since its listing as investors have invested heavily in everything related to artificial intelligence. Morgan Stanley is the lead bank for the Reddit and Astera IPOs and is expected to collect about $37 million in total fees. Last week, its Wall Street rival Goldman Sachs (GS.US) led the latest round of venture-backed technology company IPOs. Data management software developer Rubrik (RBRK.US) rose 16% on its first day of listing on the New York Stock Exchange. Stewart, who has worked on some of the largest IPOs over the past few decades, said they typically take six months to complete. He said that means companies currently considering an IPO may hold off until 2025 to avoid a conflict with the U.S. presidential election in November.
As for valuations, Stewart said the market has retreated from its 2021 peak, with price-to-earnings ratios in software and other technology now back to 2018 and 2019 levels. Stewart was cited as describing 2021 as an "amazing year" but also "exhausting."
"What's happened in the last six to 12 months is that the market has become more comfortable paying for growth again," Stewart was cited as saying. "We're not back to 2021 levels yet, but we're getting a fair price for growth. I think at these prices, you're going to start seeing companies say, 'You know, being a public company isn't actually that bad.'"
Still, the most valuable late-stage companies have yet to exit. Among them are Musk's SpaceX, Stripe and Databricks.
Stewart said that while he would “love to take these companies public,” he acknowledged that the challenge for the big companies is that “they have scale, they have growth, investors have given them a lot of money” and they are investing in the future. “Unfortunately, an IPO is not in their short-term plans right now,” he said, “but when it does come, they will be blockbuster.”