ARM's IPO, Goldman Sachs' "Battle of Prestige"

After a long period of IPO winter, the world's largest IPO is coming this year. Chip giant Arm is about to go public on Thursday, and this IPO is not only a test for investors' interest in high-risk new stocks, but also a crucial moment for top Wall Street investment bank Goldman Sachs.

On Wednesday, Arm's IPO was priced at $51, at the top end of the price range guidance of $47 to $51, with a market value expected to reach $54.5 billion. Although it is lower than the $64 billion valuation given by SoftBank Group some time ago, it is still the largest IPO of US stocks and globally this year, and the largest tech stock IPO since Uber went public in 2019.

The success of Arm's IPO may revitalize the sluggish IPO market and bring more business to Goldman Sachs and its peers. Conversely, any mistakes will continue to cast a chill on IPOs and may become another stain on Goldman Sachs CEO David Solomon, who is already in a difficult position.

In addition to Arm, delivery company Instacart, sandal manufacturer Birkenstock, and email marketing platform Klaviyo are also expected to go public for the first time, with Goldman Sachs serving as the lead underwriter for this series of IPOs.

The measure of success for these companies is whether they can successfully go public and whether their stock prices can remain above the IPO price in the weeks after listing. If this goal can be achieved, it will restore Goldman Sachs and Solomon's "face" and demonstrate their strength in driving companies to go public. Previously, Goldman Sachs attempted to build a consumer finance business, but incurred losses in this area.

Last year was the worst year for US IPOs in 30 years, due to factors such as a significant rise in interest rates and escalating geopolitical concerns. In the midst of the industry downturn, Goldman Sachs' revenue decline this year is the most severe among the six major banks in the United States, as the bank is more reliant on investment banking business than its competitors JPMorgan Chase and Morgan Stanley. CEO Solomon has been dealing with internal disagreements, and some people have left the company due to strategic mistakes and his leadership style. Although this has not affected the bank's position on the IPO rankings, the bank urgently needs a victory to quell external doubts.

Mike Mayo, an analyst at Rich Bank, said in an interview with the media:

"This is the core of the core in Goldman Sachs' business. Expectations are high, and they are likely to meet those expectations. If they don't, there will be more problems than we have seen so far."

Solomon, speaking at a Barclays conference this week about Arm and other ongoing IPOs, seems to realize the stakes involved, he said:

"It's been a long time since I've told you that we have some very important IPOs in our market. This is progress, I'm sure, and if these IPOs go smoothly (and they are currently going smoothly), it will create a virtuous cycle that will push more backlogged IPOs into the market."

A backlog of IPOs means more revenue growth. In the first half of 2023, Goldman Sachs' underwriting revenue from stocks increased by 41%, but the base for this growth was low. From 2021 to 2022, stock underwriting revenue declined by 83% to $848 million.

According to data from Renaissance Capital, there have been 72 IPOs so far this year, surpassing the 71 for the entire year of 2022, but far below the 397 during the hot market period of 2021. The average number of IPOs from 2016 to 2020 was 168.

Matt Kennedy, Senior IPO Market Strategist at Renaissance Capital, said:

"If investors make money from Arm, they are more likely to invest in the next deal."