MW Coreweave, Klarna may break IPO slump in 2025 - but OpenAI, SpaceX will wait it out

By Steve Gelsi

Dealmakers see potential for more IPOs next year, but economic headwinds and ample money to stay private could dampen the revival

Cloud-computing company CoreWeave Inc. and buy-now-pay-later provider Klarna are whetting Wall Street's growing appetite for initial public offerings from big companies in 2025 - but investors will likely have to wait longer for closely watched public debuts from SpaceX and OpenAI.

With a built-up infrastructure for raising money in private markets, SpaceX and OpenAI are well funded and not expected to go public despite interest in these high-profile names, market sources told MarketWatch.

And as MarketWatch columnist Therese Poletti recently reported, IPOs from hot artificial-intelligence names such as Anthropic and OpenAI are unlikely anytime soon.

But there are plenty of other large, private companies with long track records and the critical mass to follow December's successful IPO of ServiceTitan Inc. (TTAN), a provider of customer-relationship management software for building tradespeople.

Also read: ServiceTitan's IPO growth story wins over Wall Street with huge market opportunity in building trades

Bullish sentiment headed into 2025

Although the stock market broadly sold off sharply on Dec. 18 after the Federal Reserve signaled a potentially slower-than-expected pace of interest-rate cuts next year, stocks such as ServiceTitan have since rebounded.

Market optimism around tamer inflation, the resolution of the presidential election, and a lighter regulatory touch from the incoming Trump administration could help coax more companies to go public.

"You have five or six things that the market has consensus on - all being good for asset classes," said Jim Cooney, head of Americas equity capital markets for Bank of America. "For the broader market, it means there's an expectation that the next 24 months will be 'game on.' You'll have a heightened M&A environment, heightened market performance and all those things will line up for increased IPO activity."

With the IPO environment now potentially more habitable, the list of big private companies with the critical mass to go public has grown.

With a market value estimated at $19 billion, CoreWeave ranks as the largest among a crop of big private companies lining up for the IPO market.

Other potential IPOs include Circle, a blockchain software specialist valued at $8 billion; Netskope, a cybersecurity company valued at $7.5 billion; and Synk Ltd., another cybersecurity specialist valued at $7.4 billion.

OpenAI continues to draw speculative talk around an IPO, along with Stubhub, Medline Industries LP, Solera Holdings and Panera Bread.

Bank of America's Cooney said several technology, media and telecommunications companies are on deck for potential IPOs, as well as names from the consumer and materials sectors.

Despite healthier conditions for IPOs, investors still expect to see solid companies with longer track records than the startups that went public in years past, Cooney noted.

"What'll work in this market are well-structured deals with durable, organic growth, rational leverage levels and a real focus on free cash flow," Cooney said.

Bryant VanCronkhite, senior portfolio manager and co-head of the specialty global equity team at Allspring Global Investments, said larger private companies have been in touch with his team directly about potentially investing in IPOs because the asset-management firm tends to buy and hold stocks for longer durations.

While some private companies will remain private for longer, once several years go by, their investors will want to get paid back through an exit. This trend may drive activity in 2025.

"A lot of companies in private-equity hands are looking for ways for their investors to get out," VanCronkhite said.

Gil Mermelstein, president of Chicago-based corporate consulting firm West Monroe Partners, said market makers have been talking up the prospects for a "strong return" for IPOs in 2025, even though capital remains plentiful in private markets.

"The IPO market has been pretty dead, but we'll see a pickup," he said. "People decide to take their company public for a variety of reasons. It's a more tradeable form of capital than a private holding in a company."

Talk of taking companies public has been more frequent among West Monroe's client base of private-equity firms as they prepare for 2025, Mermelstein noted.

Kelly Rodriques, chief executive of Forge Global, said financial-technology companies and others have seen a "big reset" in valuations along with a more than 30% rise in the Nasdaq Composite COMP this year.

The IPO market will potentially regain momentum after the ServiceTitan IPO earlier in December, according to Rodriques. "IPOs and successful exits beget other successful exits," he said. "2025 will be an improvement."

To be sure, economic uncertainties remain. Grocery prices remain high, and talk of the Trump administration's potential trade tariffs centers on whether they will stoke inflation.

And while expectations for a big IPO revival have been kicking around for a while now, the IPO market has remained choppy.

A year ago, anticipation was growing around an IPO from financial-technology companies Plaid Inc. and Stripe Inc., but neither company has yet gone public.

Skims, the fashion brand from Kim Kardashian, as well as Liquid Death, the water brand, have been rumored as IPO candidates, but no formal moves have taken place in 2024.

Still, many IPO market observers continue to expect a faster pace of deals ahead.

Jay Ritter, a finance professor at University of Florida who tracks the IPO market, said a flood of new penny stocks in 2024 could give rise to larger IPOs in the vein of ServiceTitan.

"Given that the stock market is at record highs, we should see an increase in quality companies going public," Ritter said.

Also read: SpaceX's $350 billion private valuation signals an IPO is off the table for now

-Steve Gelsi

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December 23, 2024 14:18 ET (19:18 GMT)

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