Arm dips below IPO price as short sellers circle

Arm Holdings’ stock on Thursday (Sep 21) dipped for the first time below its initial public offering price, while short sellers appeared to be betting against the chip designer just a week after its Wall Street debut.

Dropping for a fifth straight session, shares of SoftBank-controlled Arm closed down 1.4 per cent at US$52.16 after sinking as low as US$49.85, well below the US$51 price set in its IPO on Sep 13.

Shares of Klaviyo which debuted on Wall Street on Wednesday, finished up 2.9 per cent at US$33.72 versus the marketing automation firm’s US$30 IPO price.

Grocery delivery app Instacart, formally known as Maplebear, ended Thursday up 1.8 per cent at US$30.65, marginally above the US$30 price set in its IPO earlier this week.

Arm’s loss on Thursday was in line with a 1.8 per cent drop in the Nasdaq as investors fretted that the Federal Reserve’s monetary policy will remain restrictive for longer than previously expected.

But the weak performances of the three companies’ shares since their highly anticipated market debuts add to doubts about whether a hoped-for revival in IPOs will materialise after a draught of over 18 months.

Suggesting short sellers are betting against Arm, about 14 million of its shares were on loan, equivalent to 8 per cent of the stock’s free float, data and analytics company Ortex said. That was up from roughly 5 per cent a day earlier.

Short sellers borrow stocks to short them, and the relationship between shares on loan and shorted is normally close, according to Ortex.

Arm shares appear highly shorted compared to other recent IPOs. Seven days after their respective IPOs, which is the current timeline for Arm, software company Simpple had 3.1 per cent of its free float on loan, while beauty products seller Oddity Tech had only 0.3 per cent of its float on loan, according to Ortex. “The short interest at the moment is one of the highest (recently) we have seen a week after an IPO,” said Ortex co-founder Peter Hillerberg. “It seems to indicate a negative view from some market participants.”

Wall Street’s steep sell-off in 2022, along with rising interest rates and fears of a potential US recession, crushed valuations of companies planning to list their shares.

The 10 biggest US initial public offerings of the past four years were down an average of 47 per cent from the closing price on their first day of trading, according to a Reuters analysis of LSEG data earlier this month.