While the stock had yet to begin trading Thursday morning, early indications suggested it could open at around $58 a share, up 14 percent from its IPO price.
The company supplies chip designs to various semiconductor manufacturers, including designs for the processor used in essentially every current smartphone. Arm chips don’t work.
SoftBank Group
In the year In 2016, Arm bought it for $36 billion. Agreement to sell the company
Nivea
(NVDA) bid for $40 billion in cash and stock by 2022 fell after stiff regulatory opposition. SoftBank will hold a 90% stake after the deal closes. The stock trades under the symbol ARM.
ARM had revenue of $2.679 billion in fiscal year March 2023; This is a hair down from $2.703 billion; In the smartphone market, it accounts for the largest share of the company’s royalty income. Net income for the year was $524 million, down from $549 million in fiscal 2022.
If the price holds when trading resumes Thursday, the deal would be a major win for SoftBank Group, which has suffered losses on its Vision Fund venture capital portfolio in recent quarters. SoftBank did not comment on how it would spend the proceeds from the IPO, but founder and CEO Masayoshi Son said the company plans to be more aggressive in AI-related investments.
SoftBank’s large position in the stock may overvalue Arm stock if the market begins to worry about the company liquidating its Arm stake. The company did not say how long it will hold the position or whether it will eventually reduce its position. SoftBank has a long history of gradually selling off large investments, as its once-biggest holdings in 2011
Ali Baba
(BABA)
Before the IPO, SoftBank bought a 25% stake in Arm held by Vision Fund for $16 billion, buying the company for $64 billion, or double what SoftBank originally paid for Arm. According to the agreement between the company and the Vision Fund, $16 billion will be paid in installments over two years. If the stock falters, SoftBank could be seen overpaying its investors for a large stake, but if Arm’s value rises over the next couple of years, the transaction could look like a smart move for SoftBank Group investors.
According to the company’s IPO prospectus, a group of well-known technology companies that include
Advanced Micro Devices
(AMD),
Apple
(AAPL), Google,
Intel
(INTC),
Nivea
(NVDA),
Samsung
,
And
Taiwan Semiconductor
(TSM) have expressed interest in buying the shares at a combined IPO price of up to $735 million.
New Street Research analyst Pierre Ferragu lifted Arm coverage on Wednesday with a buy rating and a $59 target price. ARM estimates it will spend $82 billion in 2026, based on 27 times royalty earnings and 40 times pretax earnings, with royalty earnings growing in the mid-teens annually over that period.
With Arm’s 2022 revenue flat against 2021 and a declining mobile phone market, Ferragu thinks the company can grow at least in the low double digits over the next five years. And he thinks pre-tax income could triple over the same period, assuming less spending on additional revenue.
On the other hand, according to Paul Meeks, technology fund manager with Independent Solutions Wealth Management. Baron Arm’s projected stock price appears “extremely stretched,” trailing annual sales of about 20 times, and trailing earnings of nearly 100 times. He said the valuation was unusually harsh for a company that had seen no growth in the last financial year.
Mex sees risk in exposure to China, which accounts for a quarter of the company’s revenue.
Write to Eric J. Savitz at [email protected]
