The Latest York Stock Exchange welcomes Reddit, Inc. (NYSE: RDDT) to have a good time its initial public offering. To honor the occasion, Snoo, rings the Opening Bell®.
NYSE
Wall Street’s tech IPO bankers may finally have a reason to interrupt out the champagne after an prolonged drought was broken up this week with the market debuts of Reddit and Astera Labs.
While occupying very different corners of the technology market, Reddit and Astera were the primary notable venture-backed tech corporations to go public within the U.S. since Instacart and Klaviyo in September. Before that, there hadn’t been a big deal since late 2021.
Morgan Stanley was the large winner amongst banks, having captured the coveted lead left spot on each IPOs. Goldman Sachs led last 12 months’s only two big venture-backed offerings, meaning it had been an extended dry spell for Morgan Stanley. The bank was lead left on IPOs for HashiCorp and Samsara in December 2021.
Previously two years, there have only been 15 tech IPOs total, in keeping with research provided by University of Florida finance professor Jay Ritter. That got here after a booming market in 2021, when 121 tech corporations went public, probably the most because the dot-com bubble in 2000. Goldman Sachs and Morgan Stanley cut 1000’s of jobs last 12 months partly resulting from the downturn in initial public offerings.
“The capital markets have been relatively quiet the past couple of years,” said Eric Juergens, a partner at law firm Debevoise and Plimpton who focuses on capital markets and personal equity. Investment banks have “actually been lively in pitching clients on IPOs and other transactions and positioning themselves to be there when corporations are finally ready,” he said.
Some market experts see the past week’s motion as an indication of what is to come back. Latest York Stock Exchange President Lynn Martin told CNBC on Thursday, on the opening of Reddit trading, that a number of corporations are working toward going out within the second quarter.
That may be welcome news for Morgan Stanley. The bank collected around $37 million in total fees because the lead underwriter for the Astera and Reddit IPOs. It is a drop within the bucket for the bank, which reported $12.9 billion in net revenue last quarter, largely from wealth management. However it might be an indication of life within the investment banking unit, which saw revenue drop by 46% over a two-year stretch from the fourth quarter of 2021 to the ultimate three months of last 12 months.
The 12 underwriters on Astera’s IPO this week collected $39.2 million in fees, with Morgan Stanley taking one-third of the entire, or around $12.9 million. The overallotment, or greenshoe option, which allows underwriters to buy a further 15% of shares for clients, would add $5.9 million to the fees paid out.
Astera sells data center connectivity chips to cloud and artificial intelligence infrastructure corporations. The stock soared 72% in its Nasdaq debut on Wednesday and continued rallying, gaining one other 13% over the following two days, benefiting from investors’ seemingly insatiable appetite for all things AI.
‘Everyone was watching’
Shares of the 19-year-old social media company popped 48% of their first day of trading on the NYSE, before dropping 8.8% on Friday.
Lise Buyer, founding father of IPO consultancy Class V Group, said the market is showing signs of thawing.
“A warm reception available in the market for these IPOs surely will help open the floodgates,” Buyer said. “Everyone was watching these. Investors, boards of directors and management were encouraged by them.”
She added that the bankers who’ve been waiting for motion, “need to be delighted by this.”
Goldman Sachs, Morgan Stanley’s biggest rival, had the No. 2 position on the Reddit IPO, capturing about 19% of the fee payout. The firm scored wins last 12 months because the lead on the Instacart and Klaviyo IPOs, which brought in combined fee revenue of around $35 million. When SoftBank took semiconductor design company Arm Holdings public last 12 months, Barclays led the deal, with participation from Goldman Sachs, and JP Morgan.
Arm Holdings CEO Rene Haas poses for a photograph with members of leadership outside of the Nasdaq MarketSite on September 14, 2023 in Latest York City.Â
Michael M. Santiago | Getty Images
For Investment banks, the IPO is commonly viewed as just the start of the connection with an organization. The longer term could bring follow-on offerings, debt raises and acquisitions, that are all specialties of the highest Wall Street firms.
Morgan Stanley is finding one other method to herald additional potential business. In each the Reddit and Astera IPOs, a portion of the equity was put aside for so-called directed-share programs (DSPs), giving high-valued customers, business partners or company insiders a likelihood to participate.
The model was previously employed by Airbnb, Rivian and Doximity, bringing power users or early customers into their IPOs. For Morgan Stanley, the DSPs have the potential to lure recent individual customers into the bank for wealth management and other services.
In Reddit’s case, the corporate said tens of 1000’s of Redditors participated in its DSP.
“The goal is simply to get them within the deal,” Reddit CEO Steve Huffman told CNBC in an interview on Thursday. “Just like all skilled investor.”
