MediaTalk | Season 3 | Ep. 30 - Tech IPO Market in 2025 Tells a New Kind of Growth Story

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Mike Reynolds: Hi, I'm Mike Reynolds, a senior reporter covering the media industry with S&P Global Market Intelligence's tech, media, and telecom news team. Welcome to "MediaTalk," a podcast hosted by S&P Global, wherein the news and research staff explore issues in the ever-evolving media landscape. Today, we're going to be talking about the current IPO market. Earlier this year, there were some fears that 2025 would be a disappointment. When the neocloud startup CoreWeave Inc. went public back in March, it priced lower than expected and ended its first day of trading very flat. Some companies opted to delay their IPOs, with buy-now-pay-later company Klarna Group PLC saying in May that it would postpone its IPO until the fall. But if you fast forward a couple of months to now, the IPO outlook seems much brighter, especially in the tech sector. While its first day of trading may have been a disappointment, CoreWeave is now up something like 200% in the U.S. alone. S&P has counted over 80 completed public debuts in 2025 and 60 or so announced IPOs, which puts this year on track to outpace 2024 and is already ahead of the number we saw in the full year of 2023. Joining me today to give me his thoughts on the state of the tech IPO market and the outlook for the rest of the year is West Riggs. He is head of equity capital markets at Truist Securities. West has over 25 years of experience pitching, structuring, and executing IPOs, follow-up offerings, and convertible offerings. How are you doing today, West?

West Riggs: Doing great, Mike. Thanks.

Reynolds: Alright, thanks for being with us. As I mentioned, there's been a strong acceleration in recent weeks in tech and tech-related IPOs, with recent listings performing well. How are you feeling about the market right now, West, and how does that compare if we went back a couple of months?

Riggs: Great question. Today I feel a lot better about how the market is looking for IPOs and other offerings, for that matter, versus a couple of months ago when we were in the extreme volatility during the tariff announcements. IPOs ground to a halt, and those that had happened had sold off and weren't performing that well, but things have changed very rapidly in the last, call it, month or two.

Reynolds: Okay. It seems like IPO windows are opening and closing more rapidly than they have in the past. Do these shorter windows mean that companies are preparing to go public more quickly?

Riggs: It is true. Because of the fast nature of how the markets can be changing — literally on a tweet, the market can open and close — it's changing the way companies are thinking about going public in one way. Meaning you have to be ready. You cannot speed up the process, okay? You can only slow down or pick your spot. So we're advising our clients, if they are ready to be going public from a preparation perspective, you need to do the work and be prepared so that you can hit those windows as they open.

Reynolds: I take it that, again, has that changed over the course? If you went back a few years, West, was there a longer lead time, or did companies have to be as quick to react as they may in today's markets?

Riggs: It's definitely become a process of being quick to react, but the amount of work and preparation that goes into an IPO hasn't changed; it's just how you think about hitting the windows as they open and close.

Reynolds: Okay. Historically, when companies and their advisors were looking to plan an IPO, I think they would look for market stability or predictability. In recent months, though, there have been some big market swings, as you mentioned, around tariffs. How has that impacted Truist's view of the market and maybe some of the clients you're working with?

Riggs: So we've been talking with our clients very specifically around volatility, around tariffs, volatility around other geopolitical actions. And how we're thinking about it is, what do investors care about? And what I mean by that is, are the companies we're advising having a direct impact on tariffs? So therefore, if you went to take them public, the investors who would be buying these stocks would have an interest or not because of the risk profile. So if you had a company that is heavily reliant on the outcome of tariff negotiations, investors will not want to take a look at you right now because there'd be too much risk on how you model and evaluate and put valuation on those types of companies. But if you're a company that is not impacted by tariffs and growing and doing well, investors want to hear that story all day long.

Reynolds: I gotcha. Given though, in terms of tariffs, there have been announcements, there have been pullbacks, there have been delays. How does that factor into your thinking? That's got to be a difficult situation to monitor.

Riggs: It is. But I think going back to putting yourself in the investor's shoes, things have quieted down quite a bit. There's still a lot of uncertainty on tariffs, but there's been a narrowing of the possible outcomes. So when you think about how you can model that as an investor, that helps a lot from an investor perspective, which then means we can narrow the gap or the delta of outcomes from a valuation perspective and get companies comfortable with the range of possible outcomes, and that helps you make a decision as to whether to hit that window and go public or wait for better outcomes.

Reynolds: Okay, that makes sense. Obviously, we saw a lot of activity pulled forward in 2021 amid the post-pandemic digitization frenzy. Before that, we had the SPAC explosion. What's different about the IPO market and the companies going public now? I think I read that a majority now are profitable when they begin trading as opposed to still generating startup losses. Is that the case?

Riggs: That is absolutely the case. It's very interesting when we take a look at the IPOs, call it the top 30 IPOs back in 2020 to 2021, mostly were all in tech. What you saw was a real focus on revenue growth and not much focus on profitability.

Reynolds: Yeah, that always seemed to be delayed; that would come later, right?

Riggs: That's exactly right. So when you look at those, revenue growth was about 35% annually, but profit margin was at or near zero, maybe slightly positive, but on a net income, it was definitely negative. But if you look at these companies now, you're seeing most of these private companies took the last couple of years to refocus the business, continue to grow, but really get to a level of profitability. So now you see growth rates in the mid to high teens on the revenue. But the profit margins are much higher, closer to 30% on the profit margins.

Reynolds: So these companies have been ready to do business as it goes. And then when they go public, they're really hitting the ground running.

Riggs: 100%.

Reynolds: Okay. Alright. Let's talk a little bit about valuation strategies. How important is pricing right now?

Riggs: In a fragile-but-getting-better IPO market, pricing strategy is critical. And the way that I advise our IPO clients is really to focus on what I would call optimizing the pricing outcome versus maximizing the pricing outcome. And what does that mean? You can push valuation and maximize it on the day of the IPO, but then you introduce a high level of risk on how it will trade after the fact.

Reynolds: Okay.

Riggs: Whereas if you optimize it, you're really treating your new investors as partners in a long-term part of your story, and you want them to be happy at the time of the IPO, such that they're in the market the next day buying more stock and driving the price higher.

Reynolds: So yeah, because you don't want to be on the high end coming out of the gate, because otherwise, and then if it goes down, you're like, what did I do?

Riggs: Correct. Because in an IPO situation, you're selling somewhere between, call it, 15 to 20% of your company. And after the fact, the entire company is valued at where the stock trades. So you're selling a relatively small portion of your company, but the valuation mark and where it trades after the fact is much more important.

Reynolds: No surprise, there's been a lot of capital and oxygen and conversation taken up by the Magnificent Seven. What is the opportunity for smaller or mid-market players looking to enter the IPO game at this juncture?

Riggs: I think the opportunity is enormous. I think, right now, you're absolutely right. The Mag Seven makes up about 35% of the market cap of the S&P 500 part, right?

Reynolds: Yeah.

Riggs: If you look back in history and created a Mag Seven every five years, those companies change. And five years from now will be different. And where the opportunity is for the disruption and the creation of the next Mag Seven. And that's what you see in the companies that are talked about that either have gone public but are still growing or are still private and looking to go public in the near term.

Reynolds: That 35% level you talked about, whatever iteration of the Mag Seven. Has that been consistent over the years?

Riggs: No. That's a good point. Over the years, the Mag Seven would, if you created a Mag Seven every five years, that percentage was much less. In previous years, it's been a real explosion in a real outlier right now.

Reynolds: I gotcha. What has GenAI done for the IPO market? How excited are people about this technology involving every aspect of, or most aspects of professional personal lives these days?

Riggs: I would say it's stoking the fires, putting fuel on the fires. And what we're seeing is an AI component to virtually every company that we're talking to. For example, I met with a company that is looking to go public in the medium term, let's call it, not near term, that is building smart cities. But what they're also doing is layering in AI to help the cities continue to get smarter. Datacenters, it's all about AI. Software, it's all about AI. So every single subsector within companies that could be going public, everyone is now having to be faced with, what's my AI strategy? Even if it's a small part of it, investors are going to want to know how are you going to keep your competitive advantage? And layering in AI is a key part of that.

Reynolds: So you have to be in the AI game if you want attention and dollars to follow.

Riggs: In some form or fashion, I believe so.

Reynolds: Okay. Alright. West, if we step outside the tech sector, I think some utilities have also tapped the IPO market of late.

Riggs: They have, or I think set a different way, energy-related companies. We've seen a lot of activities, whether it's IPOs or SPAC mergers in alternative energy, meaning how are we going to power the enormous thirst for energy that is being created mostly because of AI, right? The building of enormous data centers just creates a huge need for energy. So you're seeing small nuclear reactor companies, you're seeing different types of energy companies tap the equity markets to take advantage of the big need for capital to build the infrastructure that's going to be needed to power the AI revolution.

Reynolds: Sure. Alright. I think there's been a fair amount of interest in the secondary market transactions. The information, for example, reported earlier this year that as part of the conversations around OpenAI's $40 billion capital raise, SoftBank bought about $240 million in shares from some current and former employees, bringing that total sold to about $3 billion. At our recent Kagan Media & Telecom Summit, BMO's Brian Pitz said these secondary share sales were lessening the pressure on startups to go public because employees still have that opportunity to cash out on shares. West, what's your view? How are you thinking about the secondary market these days?

Riggs: Yeah, I totally agree. I think the secondary market has continued to evolve, and we have created different avenues to get liquidity for long-term employees, like you mentioned in your previous example. And I think that's a positive thing. However, there's people that ask, is the secondary market going to take the place of the IPO market? And I don't think so. I think the depth of the public markets is so deep and the need for companies to get public for different reasons than just liquidity, to be able to raise money, to grow, to be able to create a currency with which to do M&A, and many other reasons will always succeed in terms of the ultimate outcome of where a company's path will go. But the secondary market's a positive thing and a necessary tool in the toolbox of ways to get liquidity for shareholders.

Reynolds: Alright, convertible bonds, what are you seeing there and what does it mean for the market overall?

Riggs: So the convert market's been extremely active in the last two months. This year to date, there's been $50 billion of convert issuance that matches all of 2023 and double that of 2022. We're on pace to do $100 billion, which would be 25% more than last year. So very active in the convertible bond market. And really what that means is the public companies that can utilize this instrument are taking advantage of a thirst for that instrument and taking advantage of the volatility in the market. The volatility helps create better pricing for convert bonds, and so that is a great outcome for the convertible investor and the companies that are looking to issue converts.

Reynolds: West, we're getting to the end here. Are there any IPOs on the horizon that you are closely watching? Either potentially because they're bellwethers or because you have an interest in the company? I know my boss, Sarah James, who's also the editor here of “MediaTalk,” has been waiting to see her favorite yogurt maker, Chobani. Is that ever going to make it to the public markets, West?

Riggs: Good question. That's been long and Sarah, I hope so for your sake. There are lots of bigger companies that we're keeping a close eye on because it'll be a real gauge point on the health of the IPO market. We are tracking over 30 what we would call tier-one tech names that we expect that are ready to go public and could go at any time. Names like Stripe, Databricks, Dialpad, there are many. And then flipping over to the consumer side, Chobani for sure. There's Inspire Brands, which is a big restaurant company that owns Jimmy John's, Arby's, Buffalo Wild Wings, and Dunkin' to name a few of their brands, Impossible Foods, Panera Bread. There's a lot of stuff going on in the IPO market, and I've even talked about data centers and AI, right? So there's a ton of really cool name-brand bellwether type of companies that I expect to be coming out in the next, call it, six to twelve months.

Reynolds: Okay. We're in the middle of the summer. We are supposed to go on vacation, a little slow down. Anything as we get more into July and into August, expect some happenings over the course of the next six to eight weeks.

Riggs: I think the next, call it, month, we're going to be busy. We're going to see there are four IPOs pricing this week. There's another two that just launched that are pricing next week, and I think as we get into later July, we're going to see another handful between now and mid-August. We typically see a slowdown in the IPO and overall issuance from an equity perspective as many investors take a little vacation at the end of August. But they'll be ready to get right back at it after the Labor Day weekend.

Reynolds: Alright, there you have it, everybody. That concludes this episode of “MediaTalk.” I wanted to thank West Riggs at Truist for discussing the bustling IPO market. West, thanks for joining “MediaTalk” and sharing your acumen with us.

Riggs: Absolutely appreciate it, Mike.

Reynolds: And that concludes this episode of “MediaTalk.” This is Mike Reynolds. I also want to thank all of you for listening, and we'll catch up soon on the next installment of “MediaTalk.”