Kaltura IPO Delayed: Is the Tech IPO Market Cooling?

Shifting Market Sentiment Towards Tech IPOs

Recent discussions on The Exchange highlighted a potential shift in investor appetite, referencing downward revisions to the anticipated Compass IPO and the underwhelming performance of the Deliveroo flotation. These events suggest a possible waning demand for high-growth technology companies that are currently operating at a loss.

Further evidence supporting this trend emerged this morning with the announcement that Kaltura, a provider of video streaming software and related services, has postponed its initial public offering.

Kaltura's IPO Delay

According to JioForMe, the delay stems from Kaltura’s inability to secure a valuation that met its expectations. The company’s initial valuation request was apparently lower than what investors were willing to offer.

TechCrunch observed yesterday that Kaltura did not publish an updated, increased price range for its IPO. This was particularly noteworthy considering the robust performance of the public markets for new tech listings in recent months.

It seems the company itself was taken aback by the lack of momentum towards a higher IPO price.

Intermedia Cloud Communications Also Postpones

Adding to the growing list of postponed IPOs, Intermedia Cloud Communications, a digital communications firm, also announced a delay in its public debut today. CEO Michael Gold attributed the decision to “challenging current conditions in the market for initial public offerings, especially for technology companies.”

A Changing Landscape

The notion of “challenging conditions” for IPOs, and specifically for tech IPOs, represents a notable change in the market dynamic. Previously, the market had demonstrated considerable enthusiasm for new tech offerings.

Kaltura’s S-1 filing had previously indicated accelerating revenue growth, which initially led to expectations of a favorable initial public valuation.

These recent developments collectively suggest a cooling effect on the market’s willingness to invest in high-growth, yet unprofitable, technology ventures.

A Potential Shift in the Market

Recent observations by Axios journalist Dan Primack indicate a deceleration in the creation of Special Purpose Acquisition Companies (SPACs). Coupled with postponements and the lackluster Initial Public Offering (IPO) results seen yesterday, the market may be experiencing a swift correction towards more conventional valuation levels and demand for companies that are not yet profitable.

Considering the current trends, a decrease in SPAC formations and the number of deals completed is anticipated to be the most pronounced change among the indicators being monitored. These indicators include IPO pricing, the rate of S-1 filings, and initial trading performance.

This expectation stems from the fact that SPACs represent the most unconventional aspect of the data observed during the recent technology boom. Consequently, they are likely to be particularly susceptible to the effects of increasing financial pressures.

Beyond SPACs: Other Public Offerings

However, the dynamics between private and public markets extend beyond just SPACs. Coinbase is preparing for a direct listing, and Robinhood has confidentially submitted its IPO filing.

Numerous other software companies valued at over $1 billion are also aiming to go public this year, capitalizing on the historically high equity prices.

A temporary pause in IPO activity is a distinct possibility. An investor previously suggested that the first and third/fourth quarters of the year are typically more active for IPOs, while the second quarter tends to be slower.

This is due to the need for companies to update their financial data, a process that can be burdensome following the close of the previous fiscal year.

Therefore, a slowdown in IPOs during the second quarter should not be entirely unexpected.

Despite this, the sudden cooling of the IPO market has caught many by surprise.

Market Dynamics and Tech Equity Performance

Despite ongoing economic uncertainties, publicly traded software companies are experiencing a period of positive performance. The Bessemer Cloud Index has increased by almost 4% recently, and the Nasdaq Composite has risen by 1.74%, indicating continued investor interest in technology stocks.

The initial public offering of Coursera demonstrated strong demand, with its share price increasing both on its debut day and in subsequent trading sessions. This suggests that appetite for growth-focused tech shares has not entirely diminished.

A Shift Towards Established Tech Companies

Currently, a trend appears to be emerging where investors are prioritizing established, financially stable tech companies. This involves increased investment in leading firms and a reduction in exposure to higher-risk ventures.

Specifically, newer IPOs and companies that went public through special-purpose acquisition companies (SPACs) may face challenges. This shift benefits already-public companies, providing them with greater financial flexibility and potentially hindering competitors' access to capital.

Conversely, younger tech companies with demanding investors and a track record of unprofitability may encounter difficulties in this evolving market landscape.