Consumer brands headline 2024's IPO market, as investors remain value sensitive
With a dizzying stock rally in December, things are looking up for consumer companies eyeing a public debut next year.
While 2023 brought a handful of large IPOs — such as Instacart (CART), Arm (ARM), Klaviyo (KVYO), Cava (CAVA), and Birkenstock (BIRK) — many of the stocks fell flat soon after taking the public stage.
This was a year for rebuilding, said Avery Spear, Renaissance Capital senior analyst, after the IPO market took a nosedive in 2022. Although 2023 didn’t yield the full recovery some expected, it laid the groundwork for a more robust 2024.
"It looks a lot brighter for the year ahead,” Spear said on a phone call with Yahoo Finance. "Starting in early 2024, through the rest of the year ... we are going to see a material takeoff in new issuance."
Right now, 2024’s IPO class is headlined by names like Reddit, Panera Brands, Shein, and Skims. When they make their big move will depend on a few factors, Vincent Harrison, a PitchBook VC analyst, told Yahoo Finance.
Given many of the names listed above are consumer-focused brands, consumer spending needs to remain "really strong," said Harrison.
A healthy consumer sentiment could push the companies to go public earlier, though shoppers have been battling headwinds all year, from high interest rates and housing costs to the return of student loan payments.
However, considering brands like Skims and Shein are not luxury focused, a slight tightening of the belt likely won’t be a big hit.
“I think we would probably have to be in a full-blown recession … before they would probably consider an IPO at some later date,” said Harrison.
The S&P 500’s (^GSPC) 24% run-up this year provides some positive momentum, while timing of the Fed rate cuts will play a role as well.
The Fed is not likely to cut rates until the second half of 2024, leaving investors and businesses in wait-and-see mode to start the year, said Harrison. Leadership will want to get a clear picture of where interest rates and inflation are trending before going full steam ahead.
"The second half of 2024 is where a lot of the action is going to take place," Harrison predicted.
For many of these retailers, investors have been waiting.
Chinese fashion e-commerce giant Shein has been weighing a US IPO for some time and has now filed confidentially. But lawmakers have been raising alarm about the company’s relationship with the Chinese government, data privacy practices and allegation of forced labor in its supply chain.
Kim Kardashian's Skims, valued at $4 billion in June, is also looking to take the next step in 2024.
Panera Brands, which was taken private by German investment group JAB Holding Co. in 2017, is trying again. The owner of Caribou Coffee, Panera Bread, and Einstein Bros. Bagels previously announced plans to go public via Danny Meyer’s SPAC, but the partnership fell through due to "deteriorating capital market conditions."
Panera Brands filed confidentially to go public in early December, and has been making changes to its leadership ahead of the public debut.
In July, it named José Alberto Dueñas as CEO; the exec previously served as CEO of Einstein Bros. Bagels since 2019. Paul Carbone, former CFO of Dunkin' Brands, YETI and SharkNinja, took the role of Panera Brands CFO in August.
Other consumer IPOs on experts' radars include MOD Pizza and Inspire Brands, which owns Arby's, Dunkin', Buffalo Wild Wings, and PF Chang's, among others.
Investors are "very valuation sensitive"
But, as is always the case with investors looking to get in on IPOs: Avoid the froth.
Companies may capitalize on the pent-up market demand for new stocks and raise their initial pricing, but valuation can drop quickly afterwards.
German sandal maker Birkenstock priced its IPO at $46 a share in October; its shares briefly traded below $36 after a week. Mediterranean fast casual chain Cava debuted at $22 per share in June and quickly surged over $50 in its first month, but soon crashed to roughly $30 per share by late September. It’s now trading at around $42 per share.
Grocery delivery giant Instacart also received a choppy initial reaction from investors. Prior to its public debut, on a fully diluted basis, Instacart was priced for a market valuation of $10 billion, nearly 70% less than its private valuation of $39 billion in 2021, per PitchBook data.
Harrison said companies cannot expect another year like 2021, where a confluence of factors like cheap money and a pandemic-driven tech boom catapulted slews of stock prices. This time around, businesses will need to show financial fundamentals like free cash flow and profit, instead of just growth.
"You could still have a comeback without having 2021 numbers," Harrison pointed out.
Reasonable valuations will be crucial to success. Spear said investors are going to be "very valuation sensitive, very discerning," when it comes to participating in IPOs.
"For any companies that are pondering going public ... unless they have a clear, clear case for valuation ... it could be really tough," Harrison said.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
