The IPO Buzz: Credo Cuts IPO & Prices It at $10 – Low End of Range

Credo Technology Group Holding, Ltd. (CRDO) slashed the number of shares in its IPO and priced the deal at $10 – the low end of its $10-to-$12 range – on Wednesday night (Jan. 26, 2022). The deal was cut to 20 million shares, down from 25 million in the prospectus, to raise $200 million – far below the estimated IPO proceeds of $275 million. Credo’s stock opened at $12.10 on the NASDAQ on Thursday (Jan. 27) – up 21 percent on its first tick – and ended its first day of trading at $11.65 – up 16.5 percent from its IPO price. (Editor’s Note: This column was updated Friday morning with details on Credo’s NASDAQ debt and Samsara Vision’s postponement late Thursday of its IPO.) 

The downsizing of 2022’s first big tech IPO does not come as a shock. The word on the Street was that IPO investors were pushing for pricing below range – on a day when Federal Reserve Chairman Jerome Powell said an interest-rate increase was coming “soon” – which the markets took as a sign that the hike could come in March. Tensions between the U.S. and Russia over Ukraine simmered in the background. The Dow shot up 300 points – up 1 percent – while the NASDAQ and the S&P 500 also each gained 1 percent at Thursday’s opening after data showed that U.S. GDP grew 6.9 percent in 2021’s fourth quarter and as investors assessed the Fed’s interest-rate outlook, MarketWatch reported. 

Credo’s valuation – at the $10 IPO price – is about $1.4 billion, down from the estimated $1.6 billion that was based on pricing the full 25 million shares at the $11 mid-point of its range.

Goldman Sachs, BofA Securities, Cowen, Mizuho Securities, Needham & Co. and Stifel were the joint book-runners on Credo’s IPO.

BlackRock and two other cornerstone investors had indicated interest in buying up to $120 million – or about 44 percent – of the IPO, according to the prospectus.

Credo Technology Group was founded in 2008 by a few former executives of Marvell Technology. CEO William Brennan was the vice president of Marvell’s storage business unit from May 2000 to August 2011, the prospectus says.

Credo, which competes with Marvell, Broadcom, Cadence Design Systems and Alphawave, calls itself the chip connector. The company’s engineering operations are based in San Jose, with engineering teams in mainland China and Taiwan. (The holding company is incorporated in the Cayman Islands.)

Credo supplies the chips, the line cards and electric cables to data infrastructure customers, including Microsoft, as well as to 5G wireless service providers.

Credo says it is an innovator in providing secure high-speed connectivity solutions that deliver better power and cost efficiency as data rates and bandwidth requirements soar.

Investors liked Credo’s revenue growth, but analysts noted its lack of profitability and its $59 million in negative free cash flow for the 12 months ended Oct. 31, 2021.

For the last 12 months, Credo reported a net loss of $24.9 million on revenue of $70.4 million.

Deep Freeze

Elsewhere in the IPO market, the climate is as frigid as the temps ahead of this weekend’s Nor’easter. Just two SPACs and a small-cap unit IPO were priced earlier this week. Autonomous security robot company Knightscope (KSCP) also said on its website that it  had priced its IPO at $10; its stock closed Thursday (Jan. 27, 2022) on the NASDAQ at $5.91, going down as a broken deal on its first day of trading. The Knightscope deal was said to be pegged at 4 million shares. FYI: IPOScoop does NOT cover Reg. A offerings. To check out Knightscope, please see this story by TechCrunch.

A few SPACs and at least one small-cap IPO are now listed as “day to day” in terms of pricing, according to their bankers.

On Thursday afternoon, an ophthalmic device maker, Samsara Vision (SMSA proposed), postponed its small-cap IPO.

So far, next week’s IPO Calendar is light – one SPAC and possibly one small-cap deal.

Stay tuned.

(Never trade on proposed symbols. You might wind up owning something on the OTC Bulletin Board.)

Disclosure: Nobody on the staff has a position in any stocks mentioned above, nor do they trade or invest in IPOs. The staff does not issue advice, recommendations or opinions.

Disclaimer: A SCOOP Rating (Wall Street Consensus of Opening-day Premiums), is a general consensus taken, at press time, from Wall Street and investment professionals concerning how well an IPO might perform when it starts trading. The SCOOP Rating does not reflect the opinions of anyone associated with The SCOOP ratings should not be taken as investment advice. The rating merely reflects the opinion of the professionals at the time of publication and is subject to last-minute change.