Tech IPOs lose their shimmer

This is an audio transcript of the FT News Briefing podcast episode: ‘Tech IPOs lose their shimmer’

Marc Filippino
Good morning from the Financial Times. Today is Friday, September 29th, and this is your FT News Briefing.

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Italy raised its budget deficit forecast and investors panicked. The hype around the US IPO market seems to be fading. Plus, US student loan repayments start again next week, and Americans are grappling with this new hole in their pocket.

John Griese
It’s a real reminder of how little you actually control and how big big systems can influence your life.

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

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European government bond prices dropped yesterday. Investors got spooked by Italy’s larger-than-expected budget deficit. They’re also concerned that central banks will keep interest rates higher for longer. Yields on the Italian 10-year bond rose to their highest level in a decade. The sell-off even spread to UK markets. Ten-year yields there had their biggest daily rise since February.

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So the past two weeks were a big party for the initial public offering market. The chip designer Arm listed, the grocery store app Instacart went public and so did the marketing software group Klaviyo. The share price in all of these cases jumped, but the shine seems to be wearing off. Here to talk about it is the FT’s West Coast financial editor, Tabby Kinder. Hey, Tabby.

Tabby Kinder
Hi Marc.

Marc Filippino
So I think I may have given away a bit of the punchline, but how exactly are these flashy tech IPOs doing after their market debuts?

Tabby Kinder
It’s been really interesting to watch the trajectory of some of these stocks because immediately, Arm, for example, traded up. Instacart, I think, was up 25, 30 per cent. There were these huge pops on the first day of trading. Since then, they’ve come right back down, lots of selling, lots of volatility and at points each of these companies has been flat on their IPO price or even below it, which, considering they’re so new to the market, is unusual.

Marc Filippino
So how much of what’s going on in these stocks has to do with the skittishness that’s going on over the economy in general?

Tabby Kinder
Yeah, there’s been a lot of uncertainty, obviously, in the outlook for the economy, whether the US will go into a recession, what’s happening with interest rates. And that has put a lot of pressure on investment markets, public markets, private valuations. But the sentiment kind of shifted in the last couple of months. But we had new signs from the Federal Reserve that they were considering raising interest rates again this year and that they would keep them higher for longer through 2024. And obviously, high interest rates are a complete anathema to investor risk appetites.

Marc Filippino
So, Tabby, why does it matter that these companies are doing so poorly after their big IPOs?

Tabby Kinder
It matters because the industry really needed to see some positive news. And a lot was riding on Instacart and Klaviyo all trading successfully. And because that hasn’t happened, we go back into this sort of really uncertain time for some of these sectors where everything from fundraising ability, to your investors’ liquidity, to whether you might just run out of cash and have to collapse, that all becomes the forefront of conversations again.

Marc Filippino
Does this sink the entire IPO market? I mean, there are companies out there that aren’t tech companies that may want to go public.

Tabby Kinder
No. So there have been this summer other big IPOs outside of the tech space, and there will be some more later this year. The one everyone is watching is Birkenstock, the German shoe company, which is planning for an IPO very soon. Conditions still aren’t good for these big consumer brands, these big retail companies. It’s likely that they will be able to get an IPO away, but people aren’t expecting trading to be super hot.

Marc Filippino
Tabby Kinder is the FT’s West Coast financial editor. Thanks, Tabby.

Tabby Kinder
Thanks so much.

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Marc Filippino
After three years, student loan payments are starting again next week and Americans are tightening their belts as a result. We’re looking at nearly $16bn a month being wiped from consumer spending. That’s according to Barclays, who released a report about it earlier this year. So how is that going to influence the economy as a whole? Here to answer is the FT’s US economics editor, Colby Smith. Hey, Colby. 

Colby Smith
Hi, Marc.

Marc Filippino
Colby, put that $16bn into context for us. I mean, what might that loss do to the US economy?

Colby Smith
It’s a smaller slice of the US economy, but it doesn’t mean it doesn’t have an impact at this kind of tenuous moment. We’ve had this period of surprising strength. But there’s just this sense that a lot of that momentum and a lot of that resilience is starting to run out to a certain extent. This shock in and of itself isn’t enough to, you know, have a very, very material impact on the economy. But it’s obviously also something that you can’t fully ignore either. And at a time when interest rates are as high as they are, this really does impact affordability. And so on the whole, what economists across the board are really anticipating is that we’re just gonna see consumer spending a little bit more conservatively, you know, as the year progresses.

Marc Filippino
So what does this mean for a soft landing? Is there concern that these repayments will tip the economy into a recession?

Colby Smith
So I don’t think these repayments restarting on their own is really gonna be tipping the US economy into a recession. It’s only really expected to shave off about half a percentage point from quarterly annualised GDP growth. And on the whole, you know, people are really expecting positive growth still for the fourth quarter. But the problem is that these repayments are starting up again at the same time that there are a number of other headwinds that have emerged — things like the possibility of a government shutdown, a spike in energy prices because of supply cuts and the autoworkers’ strike as well. So if you take all of that together and then you layer on top of it the fact that interest rates are now at a 22-year high, there’s just a lot of downward pressure, I think, on the economy that didn’t really exist a couple of months ago.

Marc Filippino
Colby Smith is the FT’s US economics editor. Thanks, Colby.

Colby Smith
Thank you.

Marc Filippino
Now, even if student loan repayments aren’t about to have this massive impact on the economy, millions of Americans will still feel the pinch.

John Griese
Now that payments are starting again next week, I’m definitely making changes to my budget, re-evaluating my financial plans.

Marc Filippino
That’s one of our listeners. His name is John Griese. He’s 30 years old and works as a mechanical engineer in the state of Connecticut. John’s got $58,000 in debt from his undergraduate and graduate degrees and he’s about to start paying $750 per month towards his loans. That means a big shift in his budget.

John Griese
Short term, I’m mostly just putting off purchases that I otherwise would have made. You know, small things, like my phone is very old, I was thinking about getting a new phone, but I will not be doing that anytime soon. In the longer term, I had been thinking about trying to buy a house in the next couple of years. For that I would have needed to save for a downpayment and I’ve made the decision, instead of doing that, to focus on paying down my loans.

Marc Filippino
John says he grew up thinking he’d own a home by now.

John Griese
It doesn’t feel great, you know. It feels like I’m a bit behind. A lot of people I know are buying their homes at this time. It’s still a little bit amorphous for me. It’s a real reminder of how little you actually control and how big big systems can influence your life.

Marc Filippino
That was John Griese. He’s a regular News Briefing listener. Just want to thank everyone who called in and shared their stories. Really appreciated.

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You can read more on all of these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news.

The FT News Briefing is produced by Kasia Broussalian, Sonja Hutson, Fiona Symon and me, Marc Filippino. Our engineer is Monica Lopez. We had help this week from Monique Mulima, David da Silva, Michael Lello, Peter Barber and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio, and our theme song is by Metaphor Music.

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