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IPO Radar: Is the Raspberry Pi IPO valuation just pie in the sky?

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Shares of UK budget computer firm Raspberry Pi [LON:RPI] surged by up to 40% on Tuesday morning following its initial public offering (IPO), building up excitement for full open trade beginning this Friday. The IPO was priced at 280 pence per share, with shares soaring to 390 pence on the first day, indicating robust investor interest.

Company management stressed that listing in London was not a patriotic decision; while they had looked at New York, they felt a London IPO was a better starting place for a company of this size. A total of 30.7% of the company’s shares is up for grabs, with 11m new shares hitting the market, valued at around £31.4m.

“The listing, while small in stature, is a major boost for London’s IPO market, which has been struggling with only 23 companies coming to market last year,” said Sam North, an analyst with CFD broker eToro.

Founded in 2012, Raspberry Pi is renowned for its affordable, single-board computers.  Initially popular with hobbyists, they are now significantly used in industrial applications. In 2023, the company reported revenues of $265.8 million and a gross profit of $66 million.

The strong market reaction to the Raspberry Pi IPO highlights investor confidence in the company’s growth potential in the industrial and embedded computing sectors. Whether or not the IPO marks the beginning of a revitalisation for the London stock market remains to be seen, but current sentiment is a vote of confidence in local tech firms. As always, retail investors should take caution before investing as volatility can be high around the IPO date.

Eben Upton, CEO of Raspberry Pi, emphasised the positive interactions during the IPO marketing process and the solid support from sophisticated London investors.

Who is backing Raspberry Pi?

Significant investments from Arm [NASDAQ: ARM] and Lansdowne Partners, along with backing from Sony [TYO: 6758] underline the company’s strong industry connections. Arm said it would buy USD 35m in shares, which builds on the stake they took in October (3.4%). The funds raised will be allocated to engineering projects, supply chain improvements, and other corporate purposes, supporting the company’s ongoing expansion and technological development.

Third Bridge experts believe Raspberry Pi revenue grew by 47% and profits soared by 85% in FY22-23, which is phenomenal but unlikely to continue at that pace. Technology sector experts believe a more realistic yearly growth rate is around 20%. The strong performance in FY22-23 was driven by pent-up demand and a return to normal operations after pandemic-related supply chain issues, they reckon.


Raspberry Pi will require new revenue streams

Raspberry Pi needs 30%-40% revenue growth to prove it’s worth the IPO hype. Traditionally known as a low-cost solution, becoming a public company means they need to boost profitability and explore new revenue streams.

“Our experts suggest that Raspberry Pi can use the proceeds from its IPO to reach the next level by launching higher-end corporate products and solutions, moving beyond its current focus on hobbyist and educational products,” said Albie Amankona, a tech sector analyst at Third Bridge. “Raspberry Pi’s expectation of selling 8.4 million units in FY24 seems reasonable, considering it sold 7.4 million units in FY23.”

The company began trading in 2012 and has managed to sell more than 60m single board computers since then.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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