Does Cava’s Massive IPO Suggest a Shifting Landscape?

It’s an oasis in the desert, a sanctuary for restless capital. It’s a — two words — vibe shift.

Amid a dismal year for the IPO market, fast-casual Mediterranean lunch spot Cava on Thursday made its public trading debut. Its share price immediately popped as much as 113%, marking one of the stock market’s most explosive entrances in the past two years even though the company has yet to turn a profit. So is Wall Street partying like it’s 2020 again?

It’s All Greek To Me

Until now, the IPO market has been remarkable in its bleakness. The US has seen just over 40 IPOs so far this year, raising $7.3 billion in the process, according to Renaissance Capital data — which puts the market cleanly on track to lap last year’s 71 IPOs that raised just $7.7 billion. But it’s a pittance compared to the 397 public market debuts in 2021 that raised a staggering $142 billion. And to put this year’s market in perspective, the $4.3 billion largest debut of the year, Johnson & Johnson consumer health spinoff Kenvue Inc.’s IPO, accounted for roughly 40% of all money raised on US exchanges before the Cava listing.

But recent history didn’t deter Cava, nor its investors. The pita purveyors raised $318 million and sold over 14 million shares for $22 a pop, an elevated price from the $19 to $20 range it had initially marketed them at. Shares traded at $43.78 upon market close Thursday, a remarkable nearly 100% spike. Analysts say it could mark an IPO revival among similarly growth-focused companies, in the restaurant space at least:

• Despite not turning a profit yet, Cava, which operates 263 locations, has been able to juice revenues while increasing costs each of the past few years. In Q1, its net loss amounted to $2.1 million on revenue of more than $200 million, compared to a $20 million net loss on revenue of nearly $160 million in the same period last year, SEC filings show.
• Now, according to Bloomberg, industry watchers see an opening for competitors in the space such as Panera Bread, Fat Brands’ sports bar business, and Fogo de Chao to pursue long-milled IPOs.

“The strong pricing for the deal indicates the improved sentiment for higher-quality US domiciled specialty IPOs,” Josef Schuster, founder and CEO of IPOX Schuster, told Bloomberg. “The combined online and offline strategy in a fast-growing niche industry has increased the attractiveness of the deal.”

If You Start Me Up: Optimism has even returned to the lately forlorn tech sector. The tech-anchored S&P 500 is up some 15% year-to-date. Meanwhile, AI-focused startups have scored more funding than they know what to do with, raising $12.7 billion in the year through May after raising just $4.8 billion last year. Earlier this week, the Paris-based startup Mistral AI raised $113 million in a seed funding round… just four weeks into its existence. Capital markets, clearly, are hungry again. And, hey, it’s Paris, so at least we know they’ll put their lunch budgets to good use.