While the tech world waits with bated breath for Reddit's public debut, another company you may have never heard of is about to go public: Astera Labs. And that could be a more important test of investors' appetite for returning to tech IPOs.
Astera announced in a public filing this week that its initial public offering will be larger in every respect than originally planned. The company plans to sell more shares, 19.8 million shares versus the previous plan of 17.8 million shares, and at a higher price. $32 to $34 per share, previous range of $27 to $30. Astera plans to raise between $392.4 million and $517.6 million at the midpoint of the funding range. IPO watchers expect it to debut this week.
Reddit's IPO could be a good performance for investors looking to acquire a well-known social media company with an interesting and fast-growing AI data business, but Astera Labs is about AI hardware. And no, it's not going against Nvida, the American chip giant that has developed the world's most sought-after AI chips.
Astera Labs makes connectivity hardware for cloud computing data centers. Astera has seen a recent surge in revenue because AI requires moving large amounts of data in, out of, and around data centers. In 2022, he made $79.9 million, and then in 2023, his revenue increased by 45% to $115.8 million.
With 271 mentions of “AI” in its latest SEC filing, the company is working hard to convince investors that AI is part of a larger artificial intelligence boom.
How much AI juice Astera actually has for long-term success is debatable. Nick Einhorn, vice president of research at Renaissance Capital, a firm that tracks the IPO market and offers ETFs focused on public offerings, is somewhat skeptical. Astera “is not an AI company,” Einhorn told TechCrunch. But he believes the company is “benefiting from trends,” particularly AI-powered data center spending. In 2022, Amazon signed a warrant agreement allowing it to purchase just under 1.5 million shares. This is not proof that Amazon Web Services is a customer, but it hints at it.
Again, the company has an AI story to tell, but rapid recent growth and demonstrated early profitability could be key drivers of public market investor interest. .
Companies can grow and profit at the same time
In the startup world, growth and loss often go hand in hand. Startups raise money from private market investors and invest that money into business operations to expand their workforce and build and sell faster. By the time a startup reaches the scale necessary to file for an initial public offering, it is often not yet profitable and will likely not generate adjusted profits, let alone profits according to more stringent accounting standards, in the near future. unlikely to start.
Until the fourth quarter of 2023, Astera Labs appeared to be just such a company. The company's business has grown rapidly over the last year, with commensurate losses.
Revenue for 2022 was $79.9 million, with a net loss of $58.3 million. In 2023, his revenue was $115.8 million and his net loss was $26.3 million. So, on an annual basis, IPO experts are far from the profitable companies that this tough market demands. Even after the company removed the non-cash cost of paying employees partially in stock, its adjusted earnings remained negative in 2023.
But when you dig deeper, its financial success is more nuanced. In the third quarter of 2023, Astera Labs' revenue began to increase dramatically. In the second quarter of 2023 he made $10.7 million, in the third quarter he made $36.9 million and in the fourth quarter he made $50.5 million.
And while this growth spurt is impressive in itself, the company's profitability picture has also fundamentally improved as 2023 draws to a close. In the second quarter of 2023, he posted a net loss of $20 million, before the net loss evaporated to just $3.1 million in the third quarter of 2023.
And in the fourth quarter, Astera Labs was profitable, with net income worth $14.3 million.
Einhorn cautioned that the company's fourth-quarter 2023 results may not usher in a new normal for the company. “One of the challenges for companies like this, he explained, is that their customers tend to be concentrated and their buying patterns tend to be very clustered.” Just because a recent quarter has been strong does not guarantee that future quarters will be as well. Another weakness was that Astera revealed that its three largest customers accounted for about 70% of its revenue in 2023.
In summary, Astera Labs has ridden a wave thanks to its spending on AI data centers. The resulting financial growth is impressive and helps explain why the company's IPO is set to take place at a high valuation. Approximately $5.2 billiona significant increase from its final private market price of $3.15 billion.
If the company can gather a strong following after its first day of trading, it could open the door to an IPO for other companies finding new growth as a byproduct of AI. And perhaps this year will be enough for even more tech products to sneak up on us.