The recent market debuts of Reddit and Astera Labs have brought a glimmer of hope to Wall Street’s tech IPO bankers after a prolonged dry spell. These two venture-backed tech companies mark a significant shift in the IPO landscape as they are the first notable tech IPOs in the U.S. since Instacart and Klaviyo in September. This break in the drought comes after a long period of stagnation, with the last notable deal taking place in late 2021. The participation of Morgan Stanley as the lead left bank on both Reddit and Astera IPOs signifies a change in fortunes for the bank, which had seen a decline in its IPO activity.
According to research by University of Florida finance professor Jay Ritter, there have been only 15 tech IPOs in the past two years, a sharp decline from the 121 tech IPOs in 2021. This slowdown in IPO activity has had repercussions on investment banks, leading to significant job cuts. Eric Juergens, a partner at law firm Debevoise and Plimpton specializing in capital markets and private equity, highlighted the subdued nature of the capital markets in recent years. Despite this, investment banks have remained active in pitching clients on IPOs and positioning themselves for when companies are ready to go public.
New York Stock Exchange President Lynn Martin has expressed optimism about the future, stating that many companies are gearing up to go public in the second quarter. This potential uptick in IPO activity could provide a much-needed boost for banks like Morgan Stanley, which collected around $37 million in fees from the Astera and Reddit IPOs. While this seems modest compared to the bank’s overall revenue, it signals a resurgence in the investment banking sector, which has seen a decline in revenue over the past two years.
The success of Astera Labs in its Nasdaq debut, with its stock soaring 72% and continuing to rally, reflects the growing interest in technology companies, particularly those focused on cloud and artificial intelligence infrastructure. Reddit’s IPO was also met with enthusiasm, with shares surging 48% on the NYSE before a slight dip. Industry experts like Lise Buyer, founder of IPO consultancy Class V Group, view these IPOs as a positive sign for the market, anticipating a resurgence in IPO activity.
While Morgan Stanley and Goldman Sachs have traditionally dominated the tech IPO landscape, other players like Barclays and JP Morgan have also made significant strides in leading IPO offerings. The IPO is seen as just the beginning of a relationship between investment banks and companies, with potential follow-on offerings, debt raises, and acquisitions on the horizon. For Morgan Stanley, the introduction of directed-share programs (DSPs) in the Reddit and Astera IPOs presents an opportunity to attract new individual customers for wealth management and other services.
As the tech IPO landscape continues to evolve, the recent debuts of Reddit and Astera Labs signal a potential resurgence in IPO activity. Investment banks like Morgan Stanley and Goldman Sachs are capitalizing on this momentum, positioning themselves as key players in bringing tech companies to the public market. The success of these IPOs highlights the enduring appeal of technology companies among investors and underscores the crucial role of investment banks in shaping the future of the tech IPO scene.
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