This tech IPO revival does not come with a blockbuster pipeline

Lossmaking young tech start-ups are advised to approach IPO roadshows with an eye-catching tale of future growth and some flattering numbers to back it up. In 2024, that is not happening. The tech companies attempting to rekindle the US IPO market are not particularly young. The stories they have to tell about growth are complicated.  

Cybersecurity company Rubrik, based in Palo Alto and backed by Microsoft, is hoping to list shares while in the midst of a business model transition. Founded in 2013, it reported a loss of $354mn on $628mn of revenue in its last fiscal year. 

Revenue growth was less than 5 per cent. But the company waves aside such uninspiring figures by explaining that it is in the process of moving from short-term contracts to longer, cloud-based security subscriptions for larger clients. It points investors towards subscription annual recurring revenue. This increased by 47 per cent over the same period. 

Rubrik boasts an advisory board chaired by Chris Krebs, the former director of the US Cybersecurity and Infrastructure Security Agency who was fired by president Donald Trump for contradicting claims about election fraud.

The company’s gross margins exceed 77 per cent and customer retention rates are high. But transition complicates the financial picture. That could weigh on the valuation.

PitchBook notes that cyber security valuation multiples topped 9 times sales at the end of last year. On that basis Rubrik might expect a market cap close to $6bn. But Reddit’s recent IPO suggests it might be wise to consider pricing close to, or below, its last $4bn valuation.

Reddit’s IPO also came in the midst of a transformation. Its revenue growth dropped from 37 per cent in 2022 to 21 per cent in 2023. The company is attempting to move away from its reliance on digital advertising and is selling data licences to companies training artificial intelligence models, such as Google.

The IPO was hailed as a success and a sign of confidence in listings. But Reddit met its fundraising goal by opting to join markets with a market value of $5.4bn — about half its last private valuation. It was rewarded with a gratifying price jump on the first day of trading. 

Down round IPOs may put off big listing candidates such as Databricks, Stripe and Plaid. The IPO pipeline for 2024 is likely to be filled by smaller names with more pressing funding needs.

elaine.moore@ft.com

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