Risk markets have been generally buoyant since the Federal Reserve paused its interest rate hiking cycle in 2023 and with the Fed continuing to signal a “pivot” to lower interest rates later this year. Year-to-date through March 15, 2024, bitcoin is leading risk assets with a total return of 38.7%, followed by midstream energy at 11.4%, and the S&P 500 at 7.6%.
Optimism is rising that the U.S. initial public offering (IPO) market is “ready for liftoff” after a couple of years of significant declines in volumes and valuations. According to Ernst & Young, there were 128 U.S. initial public offerings in 2023, with a listing value of $22.6 billion. 2023 was a nice uptick compared to 2022, yet well below the capital raised in the 2019 to 2021 period.
Ernst & Young experts believe the 2024 IPO market could return to historically “normal” levels. Favorable indicators for their optimism are the significant backlog of IPO hopefuls and more favorable market conditions characterized by rising valuations, moderating volatility and inflationary pressures, and expectations of Federal Reserve interest rate cuts in the not-too-distant future.
The 11 spot bitcoin ETFs approved by the Securities and Exchange Commission (SEC) on January 11th were the first new securities offerings off the 2024 IPO launch pad. And what an amazing blastoff it has been. Bitcoin held by these vehicles has grown some 226k to 836k bitcoin in the two months since launch. The total assets in the 11 spot Bitcoin ETFs have crossed above $60 billion, over $3 billion higher than the assets under management (AUM) in the largest Gold ETF (GLD) with $56.9 billion. Bitcoin is sometimes referred to as digital gold.
Further as the chart depicts below, BlackRock iShares Bitcoin Trust (IBIT) AUM at $25.3 billion and Fidelity’s Bitcoin Fund (FBTC) garnering $9.7 billion have been the fastest growing entrants in the bitcoin fund space. The spot bitcoin ETF’s IPOs have been more widely successful than even the most optimistic expectations by garnering AUM expected over a full year in just two months. Consider this, IBIT and FBTC rank 3rd and 4th in year-to-date inflows among all ETFs, standing tall on the podium against some of the biggest, more established ETFs in the world.
Source: https://heyapollo.com/bitcoin-etf
In the 2024 IPO staging area is Reddit (RDDT), set to go public on March 21st. RDDT and is one of the most highly anticipated IPOs of 2024. The social media company is seeking a $6.5 billion valuation and is aiming to raise up to $748 million through the sale of 22 million shares at an expected price of $32.50 per share. Reuters commented on St. Patrick’s Day that Reddit’s IPO is currently between four and five times oversubscribed.
Reddit has been around since 2005 and is best known for hosting text-based discussions with expert influencers gaining popularity for their opinions and answers to audience questions. The Reddit business model is based on ad sales, as well as sponsored posts and promoted content, and premium features through subscriptions. The Reddit platform hosts vast discussion forums called “subreddits,” focused on topics ranging from technology, music, food, etc. Users are called “Redditors.” In fact, it is expected that approximately 1.8 million shares of newly issued stock in the IPO will be allocated for purchase to Redditors.
More recently Reddit has entered into licensing agreements with various Artificial Intelligence (AI) software providers to further monetize its proprietary content and data. AI companies use databases, like Reddit’s, to train their models. In its IPO registration statement with the SEC, Reddit disclosed, “In January 2024, we entered into certain data licensing arrangements with an aggregate contract value of $203.0 million and terms ranging from two to three years. We expect a minimum of $66.4 million of revenue to be recognized during the year ending December 31, 2024, and the remaining thereafter.” The licensees were not disclosed, but there is broad speculation that one or both of Google and OpenAI could be customers.
According to Axios, Reddit received a letter of inquiry on Thursday, March 14th, from the Federal Trade Commission (FTC). Reddit said publicly that the FTC is “conducting a non-public inquiry focused on our sale, licensing, or sharing of user-generated content with third parties to train AI models.” Of note, Reddit is not the only company receiving these so-called “hold letters,” according to a former FTC official who spoke with Axios.
We’re looking forward to seeing how the Reddit IPO launch performs later this week. This could ignite the IPO market for 2024.
Ready for blastoff is Starlink, a subsidiary of Space X, Elon Musk’s sponsored aerospace company. Starlink provides satellite-based internet service around the globe. Space X uses spaceships with rocket grade kerosene and liquid oxygen in its recoverable and reusable Merlin engine system to place Starlink satellites into orbit. The scale of Starlink’s satellite system is absolutely out of this world! On March 15, 2024, Space X announced that it placed its 6,000th Starlink satellite into Earth orbit. In addition, Starlink has “bravely gone where no internet service has gone before.” Last year, Starlink introduced its broadband internet service to two of the most remote areas of the globe – Pitcairn Island and Easter Island – both thousands of miles from the nearest continent.
AG Dillon & Co managing director Aaron Dillon estimated Starlink’s possible valuation at $1.6 trillion based on the following key metrics:
- Starlink has satellite internet monopoly,
- 6 billion people (33% of global population) have no access to internet,
- Starlink charges a monthly subscription fee of $50 to $110 per month,
- And with an assumed 10% Starlink capture rate of internet-less humans, or 260 million subscribers, at $50/month is $156b in annual recurring revenue,
- Aaron uses an aggressive 10x revenue multiple to derive his $1.6 trillion valuation.
With the Reddit IPO in the staging area, Elon could be possibly waiting in the wings to see how this IPO performs before proceeding with Starlink. There is little dispute about Starlink’s success in launching satellites, nor Elon’s success in launching IPOs. Talk about a match made in heaven.
So long as markets remain receptive to risk-taking, we believe it’s not a question of if, but when the Starlink IPO will come to market in 2024. In that light, we’re preparing for an Apollo 11-type countdown:
“Twenty seconds and counting. T minus 15 seconds, guidance is internal. Twelve, 11, 10, 9, ignition sequence starts… 8, 7, 6, 5, 4… 3… 2… 1, zero, all engine running… LIFT-OFF! We have a lift-off, 32 minutes past the hour. Lift-off on Apollo 11.”
