The bear and bull cases for Arm’s IPO

Arm, the British chip design firm owned by SoftBank, filed to go public yesterday evening, following years of speculation around an IPO after the company’s plan to merge with GPU giant Nvidia fell apart a few years ago.

This morning, we’re perusing the company’s F-1 filing to better understand its business, with a focus on its profitability and growth. Unlike many other IPO candidates we’ve covered in recent years, Arm is quite profitable, but it hasn’t been growing much lately.

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This is an important IPO for SoftBank, which poured billions of dollars into Arm when it bought the company. It’s also an important IPO for the market in general, particularly for startups, even if Arm is not the usual venture-backed business that we usually cover.

Why? Venture capitalists and founders alike are currently enduring a liquidity drought, which this IPO could help resolve. If the listing is received well, it could bolster confidence in the public markets, which could in turn spur more companies to list. For the hundreds of unicorns currently stuck in the private markets, that could be big news.

On the other hand, if Arm stumbles on its way out the gate or is forced to sell its shares for far less than it expects to, the IPO could limit startups’ confidence in venturing out into the public markets and limit the number of subsequent listings. Quite a lot seems to be riding on this IPO.

Will investors be impressed with what Arm has on offer? Let’s find out.

An Arm-ful of potential

To put it simply, Arm designs computer chips and makes money from companies that use its designs to build semiconductors. In practice, this means that the company generates very high-margin revenue, spends a large fraction of that revenue on research and development, and has serious competition.