This year could prove to be a turning point for the Initial Public Offering (IPO) markets, which have struggled over the past two years. Amid high interest rates and geopolitical tensions, there’s a growing sense of optimism, making it an opportune time to scout for IPO stocks to buy. The renewed enthusiasm suggests the potential for significant market shifts
Last year’s rally in the markets resulted in U.S. IPO proceeds reaching $23.94 billion, an increase from $8.6 billion in 2022, according to White & Case. However, the number of IPOs decreased from 180 in 2022 to 154.
The increase in IPO proceeds last year does not overshadow the difficulties faced by the U.S. IPO markets in the recent past. The 2023 proceeds, while an improvement from 2022, were significantly lower than the peak of $316.63 billion in 2021 and less than half of the $62.56 billion seen in 2019, before the pandemic.
Investors and companies in the United States are cautiously hopeful that IPO activity will pick up pace in 2024. That optimism is supported by a strong start to the year, with global stock markets, including the MSCI index of global stocks, showing their best first-quarter performance in five years.
The S&P 500 also hit record highs, buoyed by a soft landing for the U.S. economy and a surge in the artificial intelligence (AI) sector. At the end of 2023, there were two successful IPOs — Germany’s Birkenstock (NYSE:BIRK) on the New York Stock Exchange (NYSE) and U.K.-based Arm Holdings (NASDAQ:ARM) on Nasdaq.
While not every IPO has seen stock prices rise post-listing, the general trend has been positive, bolstering investor confidence. Here, we look at the three successful, recent IPOs attracting attention across Wall Street.
Let’s now look at the top three IPO stocks to buy this year, each with impressive debuts and promising prospects for growth.
Rubrik (RBRK)
Rubrik (NYSE:RBRK), a cybersecurity firm supported by Microsoft (NASDAQ:MSFT), saw its shares surge nearly 21% during its initial public offering (IPO) on the NYSE. This robust entrance into the public market reflects a broader rebound in IPOs, making Rubrik a standout choice for investors exploring IPO stocks to buy, especially in the cybersecurity domain.
The burgeoning demand for cloud applications, which has increased the risk of internet-based cyber threats, has heightened the necessity for cybersecurity services. Rubrik addresses this need by offering data security solutions to a diverse clientele, including notable names such as Whirlpool (NYSE:WHR), PepsiCo (NASDAQ:PEP) and Goldman Sachs (NYSE:GS).
With over 6,000 customers, the company has established itself as a key player in the cybersecurity landscape. Competing against a range of data management and protection firms like Cohesity, Commvault (NASDAQ:CVLT), Veeam, IBM (NYSE:IBM) and Dell EMC (NYSE:DELL), Rubrik, originally known as ScaleData, has carved out a significant presence in the industry.
The company’s shares opened at $38.6, notably higher than the IPO price of $32. The IPO allowed Rubrik to raise a substantial $752 million.
Microsoft’s equity investment in 2021 further bolstered its growth during a financing round that valued Rubrik at $4 billion. Venture capital firms Greylock Partners and Lightspeed are among the company’s backers.
Reddit (RDDT)
Reddit (NYSE:RDDT) is an online social media platform where users submit content, such as text posts or direct links, to discuss different topics. The company went public in March, initially increasing its valuation by nearly 50% to $10.5 billion. However, as investors reassessed its fundamentals, the share price declined by 34%, reducing the market cap to $6.9 billion. This event underscored significant investor interest in newly public companies.
Reddit’s prominence surged during the meme stock phenomenon in 2021 when retail investors on its “wallstreetbets” forum banded together to influence the stock prices of heavily shorted companies like GameStop (NYSE:GME).
Major Wall Street brokerage firms initiated coverage on Reddit stock a few weeks after the IPO was finalized. Goldman Sachs and JPMorgan (NYSE:JPM) assigned a Neutral rating to the company with price targets of $40 and $47, respectively, while Morgan Stanley (NYSE:MS) gave an Equal-Weight rating and set a price target of $45. That conservatism on the analyst side is understandable, given that Reddit shares closed 48% higher on the company’s first day of trading.
JPM analysts highlighted the acceleration in Reddit’s daily active unique user growth but said the platform’s current user base of 73 million is relatively small compared to peers such as Facebook (NASDAQ:META) and X. They projected Reddit’s user count could reach 109 million by 2026.
Despite Reddit’s reliance on ad revenue, the brokerage underscored the potential of AI, as emphasized during its IPO. On a more bullish note, brokerages such as Deutsche Bank (NYSE:DB), Raymond James (NYSE:RJF), Needham, Piper Sandler (NYSE:PIPR) and Roth MKM have expressed strong confidence in Reddit, with Needham setting the highest price target on Wall Street at $55.
Reddit was described as an “iconic internet asset” by Piper and the “front page of the Internet” by Roth, with both suggesting the company deserves a premium valuation due to its large and unique user-generated content, which is increasingly valuable for AI model training.
Ibotta (IBTA)
Ibotta (NYSE:IBTA) is a mobile technology company that offers a cashback and rewards app, primarily used for grocery shopping. Users earn cash back on purchases by performing simple tasks, submitting receipts or linking store loyalty accounts.
Wall Street analysts initiated mostly positive research coverage on IBTA stock, making it one of the promising IPO stocks to buy. Citi (NYSE:C) and Wells Fargo (NYSE:WFC) analysts initiated with a rating equivalent to Buy, as they saw upside for IBTA shares. On the other hand, Goldman Sachs started with a Neutral rating.
The firm believes Ibotta is well-positioned to benefit from long-term growth trends in the digital advertising and grocery sectors, particularly as spending shifts from offline to online channels. Goldman suggested that Ibotta’s stock could experience volatility in the coming year due to macroeconomic factors impacting digital advertising, the rate of third-party (3P) redeemer additions and the effects of Ibotta’s partnership with Walmart (NYSE:WMT).
The analysis anticipates a large and growing addressable market for Ibotta, the potential for the company to sustain over 20% revenue growth, and steady margin expansion due to scale and fixed cost leverage.
On the date of publication, Shane Neagle did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
