Amazon Seems Primed for a Subscription Revenue Push as Instacart Prices Its IPO
A mini revival in the market for initial public offerings has us re-examining Bullpen name Morgan Stanley, though we want to assess the IPO market further before making a move.
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*Amazon sets the dates for its October event
*Another strong IPO pricing, but...
*Why there may be possible head fake risk in Morgan Stanley shares
Amazon
In addition to announcing Oct. 10-11 as the dates for its "Prime Big Deals Day," Action Alerts PLUS portfolio stock Amazon AMZN reportedly is considering new stand-alone memberships for its grocery and healthcare offerings and a potential integration of One Medical's primary care service with Prime. Such actions would be aimed at producing more subscription revenue, which we would view as a positive development given subscription revenue's recurring nature that brings with it predictability and cash flow. However, we would want to better understand the pricing and potential bundling options to gauge consumer uptake. During the first half of this year, Amazon's revenue from subscription services tallied $19.6 billion, or 3.9% of total revenue, which for a frame of reference is almost on par with its faster-growing Advertising services business (4%).
Instacart prices its IPO
Last night delivery company Instacart CART priced its initial public offering at $30 a share, the top end of its $28-$30 target range, thus giving it a valuation of $10 billion. This follows the recent pricing of Arm Holdings' ARM IPO that also priced at the top end of its expected price range. Next up is marketing automation company Klaviyo KVYO later this week, and the company has boosted its pricing expectation for the transaction.
The combination of these three has the overall market becoming more optimistic about the IPO market, and that has given some recent lift to Bullpen resident Morgan Stanley MS . Over the last few days, MS shares moved to Monday's close of $88.71 from $83.51 on Sept. 11. That's a nice move, especially given the 1% decline in the S&P 500 over that same time frame.
Our issue with Morgan Stanley is that it was not one of the underwriters associated with either the Arm or the Instacart IPO; those were Barclays BCS , Goldman Sachs GS , JPMorgan Chase JPM and Mizuho MFG for Arm and Goldman Sachs and JPMorgan with Bank of America BAC , Barclays and Citigroup C for Instacart.
Morgan Stanley is part of the underwriting team for Klaviyo's IPO but it is sharing that lead with Goldman and Citigroup.
While we are encouraged by what we've seen so far when it comes to the IPO market, tomorrow's Fed policy statement and expected hawkish pause could temper how wide open that IPO window becomes. If the likelihood grows for the scenario we outlined in our opening comments this morning about the possible negative impacts on the market of the United Auto Workers strike, a potential government shutdown and the resumption of student debt payments, we could see the IPO window close again. Rather than risk being victim of a head fake, we'll remain on the sidelines with MS shares for now until we have greater visibility for the IPO market.
At the time of publication, Action Alerts PLUS was long AMZN and BAC while MS is in the Bullpen.