PROFITABILITY still matters when it comes to initial public offerings (IPOs) in Europe, even for tech startups, according to Bank of America (BOA).
“Regarding IPOs of pre-break-even tech companies, we are not quite there yet,” said Jerome Renard, head of EU ECM at the lender.
Despite a tentative rebound in European IPOs in 2024, tech companies have been unable to raise money on Europe’s exchanges for two years. The most recent significant IPO in the sector was Technoprobe, which raised more than US$800 million in early 2022.
French software firm Planisware postponed its listing on Euronext Paris in October 2023 amid challenging market conditions, even though it is now generating profit, according to its latest earnings update. Doctolib, which operates an app to book medical appointments and aims to break even in early 2025, is considering a listing but not any time soon.
“One will have to wait for several interest-rate decreases in Europe and for more sustained primary market activity globally before that segment reopens,” BOA’s Renard said.
That is in stark contrast with the US, where the loss-making social media company Reddit raised US$860 million last month, touting its vision of profiting from the growth of artificial intelligence (AI).
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Semiconductor connectivity company Astera Labs raised US$820 million in March, while Rubrik, a cloud and data security startup backed by Microsoft, filed for an IPO despite disclosing an annual loss of US$354 million.
Reddit revealed a 2023 net loss of US$90.8 million in its IPO filing. But that did not prevent the stock from trading as high as double its IPO price of US$34 per share.
Donald Trump’s social media business Trump Media & Technology Group soared after debuting last week, though it slumped on Tuesday (Apr 3) after it disclosed a more than US$58 million loss in 2023.
Karen Kharmandarian, senior equity investment manager at Thematics Asset Management, said there is still some upside left to skyrocketing AI stocks such as Nvidia, but that is due to the fact they have a record of profitability.
“In terms of sentiment, we’re steady, but we don’t yet want to get into riskier strategies such as in non-profitable tech,” she said. BLOOMBERG
