Tech investors last week finally heard utterance of their favorite three-letter acronym: IPO.
It’s been 20 months since a notable venture-backed tech company went public in the U.S., and the chatter in Silicon Valley has centered around who will break the ice. On Friday, grocery delivery startup Instacart and data and marketing automation company Klaviyo filed for stock market debuts.
Earlier in the week, chip designer Arm, which is owned by Japan’s SoftBank, said it plans to hit the Nasdaq seven years after being taken private in a $32 billion acquisition.
The three companies have very little in common, but collectively they represent a test of the excitement level among public market investors for new opportunities. Depending on how they perform out of the gate, their offerings could propel others to follow in the fourth quarter.
“Other teams will watch the reception of these and it could encourage some of those management teams to stop waiting around for yesteryear and just get it done,” said Lise Buyer, founder of IPO consultancy Class V Group.
By “yesteryear,” Buyer is referring to the kinds of valuations tech companies were achieving in 2020 and 2021, which were record years for tech IPOs. Software vendor Snowflake, which debuted in late 2020 and saw its price-to-sales multiple shoot up to about 50, now trades at under 17 times revenue. Food delivery company DoorDash has seen its stock drop by more than two-thirds since its high in 2021, even though revenue has since grown by over 60%.
“We aren’t going back to 2021 anytime soon,” Buyer said.
Instacart, backed at high prices by venture firms including Sequoia and Andreessen Horowitz, has had a big valuation haircut ahead of its IPO. After raising private cash at a $39 billion valuation in early 2021, the company slashed that number to $24 billion in March of last year as tech stocks sank and growth slowed dramatically in a post-Covid world. The valuation reportedly fell by another 50% by late 2022.
DoorDash, which is probably Instacart’s closest public market comparison, currently trades at 3.8 times revenue. That kind of multiple would value Instacart at around $11 billion.
Instacart, which reported revenue growth of 15% in the latest quarter to $716 million, has managed to turn a profit for five straight periods by keeping costs in check and slashing head count. Net income increased to $114 million from $8 million a year earlier.
Klaviyo, which was valued at $9.5 billion in a 2021 funding round, has not been forced to reduce its valuation, according to Pitchbook and public reports. Founded in 2012, the company’s technology helps clients store user data and build profiles that enable targeted marketing via email, text messages and other channels.
Andrew Bialecki, CEO and co-founder of Klaviyo, poses for a portrait in Boston on Sep. 5, 2019.
Barry Chin | Boston Globe | Getty Images
Even though it has a much lesser-known brand, Klaviyo is growing significantly faster than Instacart, with revenue in the second quarter climbing 50% to $164.6 million. The business swung to a profit of $10.9 million in the period after losing close to $12 million a year earlier.
When looking for comparisons, the Bessemer Cloud Index, which consists of about 70 publicly traded cloud companies, provides the cleanest data. Klaviyo’s growth rate would put it near the top of the index, where companies trade at around 12 times revenue. That would imply a valuation for Klaviyo in the neighborhood of $7 billion.
Klaviyo’s biggest institutional backer is Summit Partners, followed by e-commerce software vendor Shopify, which is a key business partner. Venture firm Accel is also an investor.
According to Buyer, it’s not surprising to see companies filing to go public right now. The way SEC rules work, management teams and bankers have to wait at least 15 days after the IPO filing before they can start their roadshow. The offering could take place two weeks later.
Companies that filed last week can hit the road in early September, right after Labor Day, and go public in the middle of the month.
“Historically, late August is when you see filings for companies that want to be first in the back-to-school season,” Buyer said. “The timing makes all sorts of sense. People are coming back from the summer holidays with a fresh look at the market and interest in adding new names in Q4.”
While Instacart and Klaviyo could have significant implications for startup investors as they look at what to expect for the rest of 2023 and into next year, Arm has a slightly different audience.
The chip designer is owned by Masayoshi Son’s SoftBank, which is seeking liquidity after losing billions of dollars in recent years on mistimed and overly aggressive investments in names like WeWork, Chinese ride-hailing company Didi and Indian hotel company Oyo.
Not only is Arm much bigger than a typical venture-backed company at the time of IPO, but it’s based in the U.K. and was a public company in the past.
Arm, whose technology is critical to almost all of the world’s smartphones, reported $524 million in net income on $2.68 billion in revenue in its fiscal 2023, which ended in March, according to its filing. Arm’s 2023 revenue was slightly down from the company’s 2022 sales of $2.7 billion.
To capture a public market valuation of $32 billion, Arm would need a multiple of roughly 61 times earnings. Within the semiconductor market, Nvidia towers over everyone, with a price-to-earnings ratio of 114. But that’s a company that’s tripled in value this year and just told investors to expect 170% sales growth in the current quarter. Elsewhere in the chip space, Qualcomm trades for 15 times earnings and Applied Materials has a ratio of 19.
The technology sector may be starting to slow again. The Nasdaq is up 30% this year, coming off its worst year since 2008, but an outsized portion of the gains come from huge rallies in shares of Nvidia and Meta. So far in August, the Nasdaq is down 5.3% and is headed for its first monthly drop since February.
But at some point, companies have to stop focusing on market conditions and just decide it’s time to be public, Buyer said, as there hasn’t been a significant VC-backed tech IPO in the U.S. since HashiCorp and Samsara went public in December 2021.
The market will determine a company’s value, and if it performs over time, there will always be opportunities to sell shares at a higher price.
“You’ve got to prove your worth in the marketplace,” she said.
Meta CEO Mark Zuckerberg appears at the Meta Connect event in Menlo Park, California, Sept. 25, 2024.
David Paul Morris | Bloomberg | Getty Images
Meta CEO Mark Zuckerberg slammed rival tech giant Apple for lackluster innovation efforts and “random rules” in a lengthy podcast interview on Friday.
“On the one hand, [the iPhone has] been great, because now pretty much everyone in the world has a phone, and that’s kind of what enables pretty amazing things,” Zuckerberg said in an episode of the “Joe Rogan Experience.” “But on the other hand … they have used that platform to put in place a lot of rules that I think feel arbitrary and [I] feel like they haven’t really invented anything great in a while. It’s like Steve Jobs invented the iPhone, and now they’re just kind of sitting on it 20 years later.”
Zuckerberg added that he thought iPhone sales were struggling because consumers are taking longer to upgrade their phones because new models aren’t big improvements from prior iterations.
“So how are they making more money as a company? Well, they do it by basically, like, squeezing people, and, like you’re saying, having this 30% tax on developers by getting you to buy more peripherals and things that plug into it,” Zuckerberg said. “You know, they build stuff like Air Pods, which are cool, but they’ve just thoroughly hamstrung the ability for anyone else to build something that can connect to the iPhone in the same way.”
Apple defends itself from pushback from other companies by saying that it doesn’t want to violate consumers’ privacy and security, according to Zuckerberg. But he said that the problem would be solved if Apple fixed its protocol, like building better security and using encryption.
“It’s insecure because you didn’t build any security into it. And then now you’re using that as a justification for why only your product can connect in an easy way,” Zuckerberg said.
Zuckerberg said that if Apple stopped applying its “random rules,” Meta’s profit would double.
He also took shots at Apple’s Vision Pro headset, which had disappointing U.S. sales. Meta sells its own virtual headsets called the Meta Quest.
“I think the Vision Pro is, I think, one of the bigger swings at doing a new thing that they tried in a while,” Zuckerberg said. “And I don’t want to give them too hard of a time on it, because we do a lot of things where the first version isn’t that good, and you want to kind of judge the third version of it. But I mean, the V1, it definitely did not hit it out of the park.”
“I heard it’s really good for watching movies,” he added.
Apple did not immediately respond to a request for comment from CNBC.
Mark Zuckerberg’s announcement this week that Meta would pivot its moderation policies to allow more “free expression” was widely viewed as the company’s latest effort to appease President-elect Donald Trump.
More than any of its Silicon Valley peers, Meta has taken numerous public steps to make amends with Trump since his election victory in November.
That follows a highly contentious four years between the two during Trump’s first term in office, which ended with Facebook — similar to other social media companies — banning Trump from its platform.
As recently as March, Trump was using his preferred nickname of “Zuckerschmuck” when talking about Meta’s CEO and declaring that Facebook was an “enemy of the people.”
With Meta now positioning itself to be a key player in artificial intelligence, Zuckerberg recognizes the need for White House support as his company builds data centers and pursues policies that will allow it to fulfill its lofty ambitions, according to people familiar with the company’s plans who asked not to be named because they weren’t authorized to speak on the matter.
“Even though Facebook is as powerful as it is, it still had to bend the knee to Trump,” said Brian Boland, a former Facebook vice president, who left the company in 2020.
Meta declined to comment for this article.
In Tuesday’s announcement, Zuckerberg said Meta will end third-party fact-checking, remove restrictions on topics such as immigration and gender identity and bring political content back to users’ feeds. Zuckerberg pitched the sweeping policy changes as key to stabilizing Meta’s content-moderation apparatus, which he said had “reached a point where it’s just too many mistakes and too much censorship.”
The policy change was the latest strategic shift Meta has taken to buddy up with Trump and Republicans since Election Day.
A day earlier, Meta announced that UFC CEO Dana White, a longtime Trump friend, is joining the company’s board.
And last week, Meta announced that it was replacing Nick Clegg, its president of global affairs, with Joel Kaplan, who had been the company’s policy vice president. Clegg previously had a career in British politics with the Liberal Democrats party, including as a deputy prime minister, while Kaplan was a White House deputy chief of staff under former President George W. Bush.
Kaplan, who joined Meta in 2011 when it was still known as Facebook, has longstanding ties to the Republican Party and once worked as a law clerk for the late conservative Supreme Court Justice Antonin Scalia. In December, Kaplan posted photos on Facebook of himself with Vice President-elect JD Vance and Trump during their visit to the New York Stock Exchange.
Joel Kaplan, Facebook’s vice president of global policy, on April 17, 2018.
Niall Carson | PA Images | Getty Images
Many Meta employees criticized the policy change internally, with some saying the company is absolving itself of its responsibility to create a safe platform. Current and former employees also expressed concern that marginalized communities could face more online abuse due to the new policy, which is set to take effect over the coming weeks.
Despite the backlash from employees, people familiar with the company’s thinking said Meta is more willing to make these kinds of moves after laying off 21,000 employees, or nearly a quarter of its workforce, in 2022 and 2023.
Those cuts affected much of Meta’s civic integrity and trust and safety teams. The civic integrity group was the closest thing the company had to a white-collar union, with members willing to push back against certain policy decisions, former employees said. Since the job cuts, Zuckerberg faces less friction when making broad policy changes, the people said.
Zuckerberg’s overtures to Trump began in the months leading up to the election.
Following the first assassination attempt on Trump in July, Zuckerberg called the photo of Trump raising his fist with blood running down his face “one of the most badass things I’ve ever seen in my life.”
A month later, Zuckerberg penned a letter to the House Judiciary Committee alleging that the Biden administration had pressured Meta’s teams to censor certain Covid-19 content.
“I believe the government pressure was wrong, and I regret that we were not more outspoken about it,” he wrote.
After Trump’s presidential victory, Zuckerberg joined several other technology executives who visited the president-elect’s Mar-a-Lago resort in Florida. Meta also donated $1 million to Trump’s inaugural fund.
On Friday, Meta revealed to its workforce in a memo obtained by CNBC that it intends to shutter several internal programs related to diversity and inclusion in its hiring process, representing another Trump-friendly move.
The previous day, some details of the company’s new relaxed content-moderation guidelines were published by the news site The Intercept, showing the kind of offensive rhetoric that Meta’s new policy would now allow, including statements such as “Migrants are no better than vomit” and “I bet Jorge’s the one who stole my backpack after track practice today. Immigrants are all thieves.”
Recalibrating for Trump
Zuckerberg, who has been dragged to Washington eight times to testify before congressional committees during the last two administrations, wants to be perceived as someone who can work with Trump and the Republican Party, people familiar with the matter said.
Though Meta’s content-policy updates caught many of its employees and fact-checking partners by surprise, a small group of executives were formulating the plans in the aftermath of the U.S. election results. By New Year’s Day, leadership began planning the public announcements of its policy change, the people said.
Meta typically undergoes major “recalibrations” after prominent U.S. elections, said Katie Harbath, a former Facebook policy director and CEO of tech consulting firm Anchor Change. When the country undergoes a change in power, Meta adjusts its policies to best suit its business and reputational needs based on the political landscape, Harbath said.
“In 2028, they’ll recalibrate again,” she said.
After the 2016 election and Trump’s first victory, for example, Zuckerberg toured the U.S. to meet people in states he hadn’t previously visited. He published a 6,000-word manifesto emphasizing the need for Facebook to build more community.
The social media company faced harsh criticism about fake news and Russian election interference on its platforms after the 2016 election.
Following the 2020 election, during the heart of the pandemic, Meta took a harder stand on Covid-19 content, with a policy executive saying in 2021 that the “amount of COVID-19 vaccine misinformation that violates our policies is too much by our standards.” Those efforts may have appeased the Biden administration, but it drew the ire of Republicans.
Meta is once again reacting to the moment, Harbath said.
“There wasn’t a business risk here in Silicon Valley to be more right-leaning,” Harbath said.
While Trump has offered few specific policy proposals for his second administration, Meta has plenty at stake.
The White House could create more relaxed AI regulations compared with those in the European Union, where Meta says harsh restrictions have resulted in the company not releasing some of its more advanced AI technologies. Meta, like other tech giants, also needs more massive data centers and cutting-edge computer chips to help train and run their advanced AI models.
“There’s a business benefit to having Republicans win, because they are traditionally less regulatory,” Harbath said.
Meta’s CEO Mark Zuckerberg reacts as he testifies during the Senate Judiciary Committee hearing on online child sexual exploitation at the U.S. Capitol in Washington, U.S., January 31, 2024.
Evelyn Hockstein | Reuters
Meta isn’t alone in trying to cozy up to Trump. But the extreme measures the company is taking reflects a particular level of animus expressed by Trump over the years.
Trump has accused Meta of censorship and has expressed resentment over the company’s two-year suspension of his Facebook and Instagram accounts following the Jan. 6 attack on the Capitol.
In July 2024, Trump posted on Truth Social that he intended to “pursue Election Fraudsters at levels never seen before, and they will be sent to prison for long periods of time,” adding “ZUCKERBUCKS, be careful!” Trump reiterated that statement in his book, “Save America,” writing that Zuckerberg plotted against him during the 2020 election and that the Meta CEO would “spend the rest of his life in prison” if it happened again.
Meta spends $14 million annually on providing personal security for Zuckerberg and his family, according to the company’s 2024 proxy statement. As part of that security, the company analyzes any threats or perceived threats against its CEO, according to a person familiar with the matter. Those threats are cataloged, analyzed and dissected by Meta’s multitude of security teams.
After Trump’s comments, Meta’s security teams analyzed how Trump could weaponize the Justice Department and the country’s intelligence agencies against Zuckerberg and what it would cost the company to defend its CEO against a sitting president, said the person, who asked not to be named because of confidentiality.
Meta’s efforts to appease the incoming president bring their own risks.
After Zuckerberg announced the new speech policy Tuesday, Boland, the former executive, was among a number of users who took to Meta’s Threads service to tell their followers that they were quitting Facebook.
“Last post before deleting,” Boland wrote in his post.
Before the post could be seen by any of his Threads followers, Meta’s content moderation system had taken it down, citing cybersecurity reasons.
Boland told CNBC in an interview that he couldn’t help but chuckle at the situation.
“It’s deeply ironic,” Boland said.
— CNBC’s Salvador Rodriguez contributed to this report.
Apple is losing market share in China due to declining iPhone shipments, supply chain analyst Ming-Chi Kuo wrote in a report on Friday. The stock slid 2.4%.
“Apple has adopted a cautious stance when discussing 2025 iPhone production plans with key suppliers,” Kuo, an analyst at TF Securities, wrote in the post. He added that despite the expected launch of the new iPhone SE 4, shipments are expected to decline 6% year over year for the first half of 2025.
Kuo expects Apple’s market share to continue to slide, as two of the coming iPhones are so thin that they likely will only support eSIM, which the Chinese market currently does not promote.
“These two models could face shipping momentum challenges unless their design is modified,” he wrote.
Kuo wrote that in December, overall smartphone shipments in China were flat from a year earlier, but iPhone shipments dropped 10% to 12%.
There is also “no evidence” that Apple Intelligence, the company’s on-device artificial intelligence offering, is driving hardware upgrades or services revenue, according to Kuo. He wrote that the feature “has not boosted iPhone replacement demand,” according to a supply chain survey he conducted, and added that in his view, the feature’s appeal “has significantly declined compared to cloud-based AI services, which have advanced rapidly in subsequent months.”
Apple’s estimated iPhone shipments total about 220 million units for 2024 and between about 220 million and 225 million for this year, Kuo wrote. That is “below the market consensus of 240 million or more,” he wrote.
Apple did not immediately respond to CNBC’s request for comment.