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Tag: Arm Holdings PLC

  • Sequoia and Andreessen to take a huge hit on their 2021 Instacart investment, after a 75% plunge in valuation

    Sequoia and Andreessen to take a huge hit on their 2021 Instacart investment, after a 75% plunge in valuation

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    Sequoia Capital and Andreessen Horowitz, two of Silicon Valley’s most high-profile venture firms, are poised to take a massive hit on their last investment in grocery delivery company Instacart, a deal that closed in 2021 as tech stocks were soaring.

    In its latest IPO prospectus update, filed Friday, Instacart said it plans to sell shares at $28 to $30 apiece, valuing the company at around $10 billion at the top of the range.

    That’s more than 75% below where Sequoia and Andreessen invested in early 2021. At that time, Instacart sold shares at $125 a piece for a $39 billion valuation. The delivery economy was booming because of Covid shutdowns, and Instacart’s services were seeing record demand.

    “This past year ushered in a new normal, changing the way people shop for groceries and goods,” Instacart finance chief Nick Giovanni said in a press release at the time.

    In the more than two years since then, Instacart and its investors have learned that growth during that period was anything but normal. Instacart was closing out a quarter in which revenue surged 200%. In the quarter before, sales jumped almost sevenfold. Instacart said it was preparing to increase head count by 50% and bolster investment in advertising.

    Sequoia’s Mike Moritz, who led his firm’s investment and recently announced his departure after 38 years, said in the same press release that Instacart was “fulfilling its role as a vital service for consumers, a reliable partner for retailers and an effective platform for advertisers.” Fidelity, T. Rowe Price and D1 Capital Partners also participated in that financing round.

    Then the economy reopened, inflation spiked and the Federal Reserve started boosting interest rates, which hovered near zero throughout Covid. Consumers started shopping again in person on tightened budgets, and with capital costs jumping, investors began demanding that cash-burning companies find a path to profitability. Last year, the Nasdaq suffered its steepest drop since the 2008 financial crisis.

    It’s also true that venture firms haven’t seen any real returns from IPOs since before the 2022 market collapse. The dearth of exits is particularly stark because VCs invested record amounts of capital in 2020 and 2021, including deals at high valuations in areas such as crypto and fintech.

    Even with the changing market conditions, Instacart has continued to grow but at a dramatically slower pace. Revenue increased 15% in the latest quarter from the year prior, and operating expenses have come down over that time, allowing the company to turn profitable.

    From a valuation perspective, the bigger issue is that Instacart raised the $39 billion round during a record stretch of tech IPOs, and just a couple of months after fellow sharing-economy companies Airbnb and DoorDash had blockbuster offerings.

    There hasn’t been a notable venture-backed tech IPO in the U.S. since late 2021, and Instacart and Klaviyo are the only two that have publicly filed recently. Car-sharing service Turo is also on file, but its initial prospectus came out in early 2022.

    Fortunately for Sequoia and Andreessen, they began investing in Instacart when the company was in its early days and the stock price was much lower than it is today. Assuming the stock price holds up, there’s still considerable money to be made for limited partners. Because of the lock-up period, the firms can’t begin selling shares until 180 days after the offering.

    Sequoia is the largest investor in Instacart, with a 15% stake on a fully diluted basis. The 400,000 shares it purchased in 2021 are a small sliver of the 51.2 million shares it owns. In total, the firm has invested about $300 million for a stake that would be worth over $1.5 billion at the top of the range.

    Sequoia led Instacart’s $8.5 million Series A round in 2013, when the price was just 24 cents a share, according to the prospectus. Andreessen led the next round at $2.98, and Sequoia participated. Both firms were in the Series C at $13.31 a share and the Series D at $18.52.

    Because Andreessen’s total ownership is below 5%, its full stake isn’t disclosed in the prospectus.

    Representatives from Sequoia and Andreessen declined to comment.

    Not until 2020 did Instacart’s share price climb to around where it is today, in a $200 million round led by Valiant Peregrine Fund and D1. Neither Sequoia nor Andreessen participated in that round.

    Even if Instacart’s IPO can’t lift its valuation anywhere near its Covid-era peak, it’s likely that Sequoia, Andreessen and other venture firms are hoping it helps lift public investor enthusiasm for new tech stocks. Arm, which was taken private by SoftBank in 2016, reentered the public market on Thursday and jumped 25% in its debut.

    WATCH: Arm is IPOing profitably

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  • Instacart aims for valuation of up to $10 billion in upcoming IPO

    Instacart aims for valuation of up to $10 billion in upcoming IPO

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    Fidji Simo, CEO of Instacart Inc., speaks during an interview in San Francisco, March 3, 2022.

    David Paul Morris | Bloomberg | Getty Images

    Grocery delivery platform Instacart raised its initial price range to between $28 and $30 per share in a regulatory filing Friday, aiming for a valuation of up to $10 billion.

    Instacart plans to offer 22 million total shares when it debuts on the Nasdaq, including from current shareholders, and could raise up to $660 million. PepsiCo has also agreed to purchase $175 million in a concurrent private placement, according to the company’s securities filing.

    The company will trade under the ticker “CART.”

    Despite upping its price range — the day after a successful Arm Holdings debut — Instacart’s valuation has plunged significantly since 2021, when it raised $265 million at a $39 billion valuation.

    The company has turned a profit in recent months, reporting a net income of $242 million for the first six months of 2023, compared to a net loss of $74 million in the year-ago period, according to the securities filing.

    September is already shaping up to be a busy month for initial public offerings. Beyond Arm Holdings and Instacart, marketing automation firm Klaviyo and biotechnology firm Neumora are set to list soon.

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  • Arm jumps 6% on its second trading day with valuation topping $72 billion

    Arm jumps 6% on its second trading day with valuation topping $72 billion

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    Arm Holdings jumped another 6% on Friday at market open, continuing its rally after its Nasdaq debut this week.

    The British chip designer’s shares were trading at just over $67 around market open, implying a valuation of more than $72 billion. Arm shares were even higher earlier but pared some of those gains.

    It comes after Arm shares rallied nearly 25% on the company’s first day of trade on Thursday. Shares for its blockbuster IPO were originally priced at $51 each, valuing the company at about $54.5 billion.

    With the rally ongoing, Arm continues to trade at a premium to chip giant Nvidia, even as its faces headwinds to its growth. Some analysts have expressed concerns over the valuation.

    “The pricing is expensive … I think a lot of investors are thinking on the sidelines … and waiting to see how they execute on those drivers,” Ben Barringer, equity research analyst at Quilter Cheviot, told CNBC’s “Squawk Box Europe.”

    SoftBank, which acquired Arm in 2016, floated about 10% of the company, with the Japanese giant holding on to 90% ownership.

    SoftBank has faced criticism about its investment strategy with its massive Vision Fund tech investment arm posting a significant loss in its last fiscal year. This has been enough to put off some investors from the Arm IPO.

    You could say that Arm is 'riskily valued,' analyst says

    William de Gale, portfolio manager at BlueBox Asset Management, said he did not invest in ARM.

    “In the end, we decided that we were too worried about corporate governance with SoftBank still controlling the company with a questionable record for asset allocation,” de Gale told CNBC’s “Street Signs Europe” on Friday.

    “So we wanted to watch from the sidelines for a bit to watch how the company operates as an independent business.”

    Still, there was huge demand for shares, with several reports this week ahead of the initial public offering suggesting the listing was multiple times oversubscribed.

    Arm, whose chip architecture is in 99% of the world’s smartphones, managed to get strategic investors including Apple and Nvidia to buy shares in the listing.

    A lot of focus this week has been on some of the risk around the company including its exposure to China and rising competition from a rival semiconductor architecture, backed by some of Arm’s biggest customers.

    For it’s part, Arm CEO Rene Haas told CNBC on Thursday that the company’s China business is “doing well” with strong potential in data center and automotive applications.

    Arm’s strength has typically been in smartphones and other consumer electronics. But the company is now looking to new areas including artificial intelligence to grow its business.

    “We diversified our business. We’ve got significant growth in the cloud data center and in automotive,” Hass said.

    Arm's valuation is one of the risk points for many investors, analyst says

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  • CNBC Daily Open: Arm’s surge lends helping hand to banks

    CNBC Daily Open: Arm’s surge lends helping hand to banks

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    Arm Holdings CEO Rene Haas poses for a photo with members of leadership before the Nasdaq opening bell at the Nasdaq MarketSite on September 14, 2023 in New York City.

    Michael M. Santiago | Getty Images News | Getty Images

    This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

    What you need to know today

    The long reach of Arm
    Arm shares surged almost 25% on its first day of trading on New York’s Nasdaq, and a further 6.8% in extended trading. The chip designer priced its shares at $51 a piece in its initial public offering. Shares of Arm began trading at $56.10 a share and ended the day at $63.59. That gives the company a fully diluted market cap of about $68 billion, and a price-to-earnings multiple higher than Nvidia’s.

    Markets rebound
    U.S. stocks rose Thursday, aided by Arm’s electrifying showing and promising economic data from the U.S. The Dow Jones Industrial Average, in particular, rallied 0.96% for its best day since August. Asia-Pacific markets rose Friday, cheered by China’s better-than-expected data. Japan’s Topix gained 1.25% to hit a 33-year high, as Softbank jumped around 2.7% after Arm’s impressive showing.

    China’s economy picks up
    Finally, some positive economic data from China. Retail sales in August grew 4.6% from a year ago, beating expectations for 3% growth. Industrial production rose 4.5%, also surpassing the forecast of 3.9%. However, fixed asset investment was still weighed down by the real estate sector, and came in at 3.2%, slightly below the expected growth of 3.3%.

    Screeching to a halt
    Thousands of members of the United Auto Workers went on strike after the union failed to reach a deal with General Motors, Ford Motor and Stellantis. Workers at three key U.S. assembly plants plan to cease work from Friday — those plants were targeted because they produce highly profitable vehicles that are still in high demand.

    [PRO] Cash or stocks?
    In recent weeks, U.S. Treasury yields have risen to their highest levels in decades. Meanwhile, major indexes lost ground in August. That has boosted the attractiveness of keeping cash holdings as opposed to investing in stocks. But will that trend hold true for the rest of the year? Analysts from big banks weigh in on the debate between cash and stocks.

    The bottom line

    When you have a toothache, your whole body feels the pain. In the same vein, when Arm experienced a flush of wellbeing, it radiated through markets’ entire body, giving them their best day in weeks.

    “The successful IPO of Arm … instills some confidence that perhaps the capital markets window is going to open again after virtually being closed for the last 18 months,” said Art Hogan, chief market strategist at B. Riley Financial.

    Big banks rallied on excitement that the sleepy IPO market for tech companies might finally be stirring. (More IPOs means more dealmaking — and higher revenue — for banks.) Shares of JPMorgan Chase rose almost 2%, Morgan Stanley gained 2.09% and Goldman Sachs popped 2.86%. Tech IPOs are particularly important to Goldman as the bank relies on investment banking more than its rivals. With Instacart and marketing firm Klaviyo set to list soon, Goldman — which has been struggling of late — might see a change in its fortunes.

    Goldman and JPMorgan are big components of the Dow. That helped the blue-chip index rise 0.96%, its best day since Aug. 7, giving it a closing level above its 50-day moving average for the first time since Sept. 1. The S&P 500 advanced 0.84%, its best showing in around two weeks, and the Nasdaq Composite gained 0.81%.

    Meanwhile, a tame core PPI reading for August assuaged worries after core consumer price index was higher than expected. But because CPI is a lagging indicator, while PPI is considered a leading indicator — that is, it predicts the future state of the economy — markets found solace in the idea that things aren’t as bad as consumer inflation appeared to portray.

    And August retail sales jumped 0.6% against the 0.1% expected. Taken together with the PPI report, that suggests the U.S. economy, supported by an indefatigable consumer, might skirt a recession even as inflation gradually cools.

    “You’ve got the perfect framework of inflation heading in the right direction, but the economy not falling apart,” Hogan said. “And that really paints the picture that the Fed has done the right thing and we may well be orchestrating that elusive soft landing.”

    But the economy is infamously volatile. Hence Hogan’s all-important caveat: “At least that’s the impression we get this week.” Still, after markets ended in the red last week, any reprieve, however temporary, will be welcome.

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  • CNBC Daily Open: Arm’s spectacular day lends helping hand to banks

    CNBC Daily Open: Arm’s spectacular day lends helping hand to banks

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    Rene Haas, chief executive officer of Arm Ltd., center, during the company’s IPO at the Nasdaq MarketSite in New York, US, on Thursday, Sept. 14, 2023.

    Michael Nagle | Bloomberg | Getty Images

    This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

    What you need to know today

    The long reach of Arm
    Arm shares surged almost 25% on its first day of trading on New York’s Nasdaq, and a further 6% in extended trading. The chip designer priced its shares at $51 a piece in its initial public offering. Shares of Arm began trading at $56.10 a share and ended the day at $63.59. That gives the company a fully diluted market cap of about $68 billion, and a price-to-earnings multiple higher than Nvidia’s.

    Markets rebound
    U.S. stocks rose Thursday, aided by Arm’s electrifying showing and promising economic data from the U.S. The Dow Jones Industrial Average, in particular, rallied 0.96% for its best day since August. European markets traded higher, with the regional Stoxx 600 index climbing 1.52% and other major bourses adding at least 1% following the European Central Bank’s rate decision.

    Record rates in the EU
    The ECB raised rates by 25 basis points to 4%, a record high reached after 10th consecutive hikes since June 2022 when rates were -0.5%. The good news is that the ECB indicated it may be holding off further hikes. “ECB interest rates have reached levels that … will make a substantial contribution to the timely return of inflation to the target,” the bank’s council said.

    Focus on the core
    The U.S. producer price index, which measures wholesale prices, rose a seasonally adjusted 0.7% in August — far more than the 0.4% estimate — and 1.6% from a year earlier. August was the biggest monthly jump in more than a year. However, when stripping out food and energy prices, the month-over-month PPI was 0.2%, in line with expectations, and 2.1% on an annual basis, the lowest since January 2021.

    [PRO] No secret sauce for HP
    Warren Buffett’s Berkshire Hathaway sold a portion of its stake in HP. This year hasn’t been kind to the computer and printer maker, as its fiscal third-quarter earnings missed Wall Street’s expectations. CNBC Pro’s Yun Li breaks down what Berkshire’s play in HP initially was, and whether it’ll change going forward — based on another bet the company has made in the past.

    The bottom line

    When you have a toothache, your whole body feels the pain. In the same vein, when Arm experienced a flush of wellbeing, it radiated through markets’ entire body, giving them their best day in weeks.

    “The successful IPO of Arm … instills some confidence that perhaps the capital markets window is going to open again after virtually being closed for the last 18 months,” said Art Hogan, chief market strategist at B. Riley Financial.

    Big banks rallied on excitement that the sleepy IPO market for tech companies might finally be stirring. (More IPOs means more dealmaking — and higher revenue — for banks.) Shares of JPMorgan Chase rose almost 2%, Morgan Stanley gained 2.09% and Goldman Sachs popped 2.86%. Tech IPOs are particularly important to Goldman as the bank relies on investment banking more than its rivals. With Instacart and marketing firm Klaviyo set to list soon, Goldman — which has been struggling of late — might see a change in its fortunes.

    Goldman and JPMorgan are big components of the Dow. That helped the blue-chip index rise 0.96%, its best day since Aug. 7, giving it a closing level above its 50-day moving average for the first time since Sept. 1. The S&P 500 advanced 0.84%, its best showing in around two weeks, and the Nasdaq Composite gained 0.81%.

    Meanwhile, a tame core PPI reading for August assuaged worries — somewhat — after core consumer price index was higher than expected. As PPI is considered a leading indicator, that is, it predicts the future state of the economy, while CPI is a lagging indicator, markets found solace in the idea that things aren’t as bad as the CPI appeared to portray.

    And August retail sales jumped 0.6% against the 0.1% expected. Taken together with the PPI report, that suggests the U.S. economy, supported by an indefatigable consumer, might skirt a recession even as inflation gradually cools.

    “You’ve got the perfect framework of inflation heading in the right direction, but the economy not falling apart,” Hogan said. “And that really paints the picture that the Fed has done the right thing and we may well be orchestrating that elusive soft landing.”

    But the economy is infamously volatile. Hence Hogan’s all-important caveat: “At least that’s the impression we get this week.” Still, after markets ended in the red last week, any reprieve, however temporary, will be welcome.

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  • Arm climbs 25% in Nasdaq debut after pricing IPO at $51 a share

    Arm climbs 25% in Nasdaq debut after pricing IPO at $51 a share

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    Arm CEO Rene Haas and executives cheer as Softbank’s Arm, a chip design firm, holds an initial public offering at the Nasdaq MarketSite in New York, Sept. 14, 2023.

    Brendan Mcdermid | Reuters

    Arm Holdings, the chip design company controlled by SoftBank, jumped nearly 25% during its first day of trading Thursday after selling shares at $51 a piece in its initial public offering.

    At the open, Arm was valued at almost $60 billion. The company, trading under ticker symbol “ARM,” sold about 95.5 million shares. SoftBank, which took the company private in 2016, controls about 90% of shares outstanding.

    On Wednesday, Arm priced shares at the upper end of its expected range. On Thursday, the stock first traded at $56.10 and ended the day at $63.59.

    It’s a hefty premium for the British chip company. At a $60 billion valuation, Arm’s price-to-earnings multiple would be over 110 based on the most recent fiscal year profit. That’s comparable to Nvidia’s valuation, which trades at 108 times earnings, but without Nvidia’s 170% growth forecast for the current quarter.

    Arm Chief Financial Officer Jason Child told CNBC in an interview that the company is focusing on royalty growth and providing products to its customers that cost and do more.

    Many of Arm’s royalties come from products released decades ago. About half the company’s royalty revenue, which totaled $1.68 billion in 2022, comes from products released between 1990 and 2012.

    “As a CFO, it’s one of the better business models I’ve seen. I joke sometimes that those older products are like the Beatles catalog, they just keep delivering royalties. Some of those products are three decades old,” Child said.

    In a presentation to investors, Arm said it expects the total market for its chip designs to be worth about $250 billion by 2025, including growth in chip designs for data centers and cars. Arm’s revenue in its fiscal year that ended in March slipped less than 1% from the prior year to $2.68 billion.

    Arm’s architecture is used in nearly every smartphone chip and outlines how a central processor works at its most basic level, such as doing arithmetic or accessing computer memory.

    Child said the company sold $735 million in shares to a group of strategic investors comprising Apple, Google, Nvidia, Samsung, AMD, Intel, Cadence, Synopsis, Samsung and Taiwan Semiconductor Manufacturing Company. It’s a testament to Arm’s influence among chip companies, which rely on Arm’s technology to design and build their own chips.

    “There was interest to buy more than what was indicated, but we wanted to make sure we had a diverse set of shareholders,” Child said.

    In an interview with CNBC on Thursday, SoftBank CEO Masayoshi Son emphasized how Arm’s technology is used in artificial intelligence chips, as he seeks to tie the firm to the recent boom in AI and machine learning. He also said he wanted to keep the company’s remaining Arm stake as long as possible.

    The debut could kick open the market for technology IPOs, which have been paused for nearly two years. It’s the biggest technology offering of 2023.

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  • Goldman Sachs is in the spotlight as tech firms Arm and Instacart test IPO market

    Goldman Sachs is in the spotlight as tech firms Arm and Instacart test IPO market

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    David Solomon, Goldman Sachs interview with David Faber, September 7, 2023.

    CNBC

    The return of large tech IPOs this week after a prolonged drought isn’t just a test of investors’ appetite for risky new offerings — it’s a key moment for Wall Street’s top advisor, Goldman Sachs.

    Chip designer Arm is expected to begin trading Thursday in the year’s biggest listing. Delivery firm Instacart and marketing automation platform Klaviyo are expected to list as soon as next week.

    While they each operate in vastly different parts of the tech universe, the companies have one important thing in common: Goldman is a key advisor.

    The stakes are high for everyone involved. Last year was the slowest for American IPOs in three decades, thanks to sharply higher interest rates, rising geopolitical tensions and the hangover from 2021 listings that fared poorly. Successful IPOs from Arm and others will boost confidence for CEOs waiting on the sidelines, and activity there would help revive other parts of finance including mergers and financing.

    That would be meaningful for Goldman, which is more dependent on investment banking than rivals JPMorgan Chase and Morgan Stanley. Amid the industry’s slump, Goldman has suffered the worst revenue decline this year among the six biggest U.S. banks, and CEO David Solomon has contended with internal dissent and departures tied to strategic errors and his leadership style.

    “This is the core of the core of what Goldman Sachs does,” Mike Mayo, Wells Fargo banking analyst, said in a phone interview. “Expectations are high, and they’re likely to meet those expectations. Should they fall short, there will be far more questions than anything we’ve seen so far.”

    Lead-left bank

    Goldman is lead-left advisor on Instacart and Klaviyo, meaning their bankers drive decisions, coordinate other banks and typically earn the biggest portion of fees. On Arm, Goldman shares top billing with JPMorgan, Barclays and Mizuho. Goldman also was named the deal’s allocation coordinator.

    But the sought-after title of lead advisor comes with added scrutiny if the deals flop.

    If shares of Arm or the other two IPOs fail to trade for a premium to the list price in coming weeks, dark clouds could form over the nascent market rebound. For Goldman, perceptions of a bungled process would feed doubts about the company under Solomon.

    Unlike the bank’s unfortunate foray into consumer finance, Goldman’s position atop Wall Street’s league tables hasn’t budged. The bank has actually gained share in advisory and trading since Solomon took over in 2018.

    But even in its traditional stronghold, there is room for cracks. Goldman is being investigated for its role advising Silicon Valley Bank in the days before its collapse.

    What’s Arm worth?

    Initial public offerings can be tricky transactions to navigate. Advisors need to properly gauge interest in shares and balance demands from clients while pricing shares so investors see upside.

    While Arm’s offering is reportedly seeing high demand, there are nagging doubts about the company’s valuation, its large exposure to China and its ability to ride the artificial intelligence wave. The SoftBank-owned company’s valuation has waxed and waned in recent weeks, from as high as $70 billion initially to the roughly $55 billion that represents the top end of a target share price of $47 to $51.

    “We believe investors should avoid this IPO, as we see very limited upside ahead,” David Trainer, CEO of research firm New Constructs, wrote Tuesday in a note. “SoftBank is wasting no time by offering Arm Holdings to the public markets, and at a valuation that is completely disconnected from the company’s fundamentals.”

    Further, Arm is selling an unusually small slice of its overall stock, about 9%, which helps drive scarcity. That small public float means new investors will have fewer rights related to voting power and corporate governance, Trainer noted.

    The IPO is expected to raise more than $5 billion for Arm and generate more than $100 million in fees for its bankers.

    There are more than 20 tech companies weighing whether to go public in the next year or so if conditions remain favorable, according to bankers with knowledge of the market. While some have begun taking steps to list in the first half of 2024, according to the bankers, the situation is fragile.

    “If those three don’t go well, it doesn’t bode well for the rest of the IPOs or M&A because people will lose confidence,” one of the bankers said.

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