Members of U. community react to recent changes in IPO market

Over the past month, several major companies have launched initial public offerings (IPOs), marking a recent surge in the IPO market and an overall shift in investor sentiment.

An initial public offering (IPO) is the process in which a private company turns into a publicly traded company and sells its stock, or ownership of the company, to public investors.

This recent change in the market began earlier this month when Arm Holdings (Arm), a U.K.-based semiconductor and software design company, went public and listed its shares on the Nasdaq stock exchange. Arm's IPO was this year's largest initial public offering.

Lisa Kaplowitz, an associate professor in the Department of Finance and Economics at Rutgers Business School and executive director at the Rutgers Center for Women in Business (CWIB), said that a company goes public for two primary reasons: to access more money to expand its business and to provide private investors the opportunity to monetize their investments.

The post-pandemic IPO market had stayed dormant due to a lack of investor optimism, but companies have recently gained confidence in their ability to raise capital as the Federal Reserve slows down on interest rate hikes and inflation concerns subside, she said.

Arm's IPO valued the company at $54.5 billion and priced its shares at $51, which allowed the company's previous sole owner, SoftBank, to raise $4.9 billion, according to an article by Reuters.

"Arm was an incredible IPO because it priced really well, and then it traded really well," Kaplowitz said. "We like to say in finance that 'the trend is your friend' … It's encouraging other companies to say, 'This could be an opportunity for us to go public to raise some money (to) grow our business.'"

Following Arm's footsteps, technology companies Instacart and Klaviyo went public last week through their own IPOs and received a positive reception from Wall Street investors. Birkenstock, a German shoe manufacturer, also plans to go public in October.

Kaplowitz added that technology companies are typically more risky to invest in and, therefore, are expected to compensate investors with higher returns compared to other industries, such as retail and consumer goods.

Regarding the importance of financial markets for Rutgers students, irrespective of major, she said that understanding the market is essential to implementing the time value of money and successfully managing one's personal finances.

"Being able to understand not only IPOs but the markets — the economy in general — helps us get an early start on how we're going to invest our money," she said. "If you could invest (in) something today, it can grow to be something really big tomorrow. If you wait to invest tomorrow, it's not going to be able to grow nearly as much."

Ojal Khubchandani, a Rutgers Business School junior and co-director of the Bender Trust Project in the Little Investment Bankers of Rutgers (LIBOR), said that she initially learned about IPOs during her internship search and has continued monitoring IPO developments, including Arm.

Among companies going public, a shared factor has been more established and profitable business models, which investors assess favorably, she said.

Khubchandani said that she has mixed feelings about the IPO market due to changing economic conditions and the 2023 banking crisis, and despite the latest resurgence of IPOs, she views the current market landscape as strikingly volatile.

"It can kind of be concerning because when you're in a difficult market, people don't want to hire as much," she said. "So that makes the recruiting process a bit tougher."

Similar to Kaplowitz, Khubchandani said that she believes following the financial markets is a significant pathway for students to create wealth and build sources of passive income.

"Understanding the market — it's a way to help yourself out in the long run," Khubchandani said. "For students inside (Rutgers Business School) … the markets in general should be a big focus because that is the core of what the finance industry runs on. And if you don't know what's happening in the market, you're likely not going to be able to understand your job and what (the market) means for you in the future."