A big week for tech IPOs like Reddit is boosting Morgan Stanley after a lull

Wall Street’s IPO bankers may finally have a reason to drink champagne after a prolonged drought that was broken this week by the IPOs of and .

Occupying very different corners of the tech market, Reddit and Astera were the primary significant venture-backed tech corporations to go public within the U.S. in September. Previously, there had been no significant transaction for the reason that end of 2021.

was a big winner amongst banks, taking the coveted left lead spot in each IPOs. led the one two major venture-backed offerings last yr, meaning it was a long dry spell for Morgan Stanley. The bank remained the leader for IPOs in December 2021 and December.

According to them, there have been a total of only 15 technology IPOs within the last two years tests provided by University of Florida finance professor Jay Ritter. This followed a booming market in 2021, with 121 technology corporations going public, essentially the most for the reason that dot-com bubble in 2000. Goldman Sachs and Morgan Stanley cut hundreds of jobs last yr, partly due to downturn in initial public offerings .

“The capital markets have been relatively calm over the last few years,” said Eric Juergens, a partner on the law firm Debevoise and Plimpton, which focuses on capital markets and personal equity. Investment banks “have certainly been actively encouraging clients for IPOs and other transactions and preparing to be there when the companies are finally ready,” he said.

Some market experts see the events of the past week as a harbinger of things to return. New York Stock Exchange President Lynn Martin told CNBC on Thursday through the opening of trading on Reddit that many corporations are working to exit the market within the second quarter.

This can be excellent news for Morgan Stanley. As the predominant underwriter of Aster and Reddit shares, the bank collected a total of roughly $37 million in fees. That’s a drop within the bucket for the bank, which reported $12.9 billion in net revenue last quarter, mostly from wealth management. However, this might mean a revival for the investment banking unit, which saw its revenue decline by 46% within the two years from the fourth quarter of 2021 to the last three months of last yr.

Astera’s 12 underwriters collected $39.2 million in commissions this week, with Morgan Stanley taking a third of the whole, or about $12.9 million. The overlotment option, or greenshoe option, which allows insurers to buy a further 15% of shares for clients, will increase fees paid by $5.9 million.

Astera sells data center connectivity chips to cloud infrastructure and artificial intelligence corporations. The company’s shares surged 72% on Wednesday’s debut on the Nasdaq Stock Exchange and continued their gains, gaining one other 13% over the subsequent two days, benefiting from investors’ seemingly insatiable appetite for all things artificial intelligence.

Reddit’s long-awaited IPO took place on Wednesday evening, with shares hitting the open market on Thursday. Morgan Stanley earned $13 million in fees on the deal and had a likelihood to earn as much as $5.6 million in greenshoe option fees.

Shares of the 19-year-old social media company rose 48% on their first day of trading on the NYSE and fell 8.8% on Friday.

Lise Buyer, founding father of IPO consulting firm Class V Group, said the market is showing signs of thaw.

“The warm reception of these IPOs in the market will certainly help open the floodgates,” Buyer said. “Everyone was watching it. Investors, boards and management were encouraged by this.”

She added that bankers who’ve been waiting for motion “must be delighted with this.”

, Morgan Stanley’s biggest rival, took second place within the Reddit IPO, taking about 19% of the fee paid. The company emerged victorious last yr, leading the IPOs of Instacart and Klaviyo, which brought in total fee revenue of about $35 million. When SoftBank took semiconductor design company Arm Holdings public last yr, it led the deal, with participation from Goldman Sachs and .

For investment banks, an IPO is often viewed as just the start of a relationship with a company. The future may bring more offers, debt increases and takeovers, that are the specialty of leading Wall Street firms.

Morgan Stanley finds one other solution to attract additional potential business. In each the Reddit and Astera IPOs, a portion of the capital was allocated to so-called directed share programs (DSPs), giving valued customers, business partners or company insiders the prospect to participate.

This model was previously utilized by , and , encouraging advanced users or early adopters for their IPO. According to Morgan Stanley, DSPs can attract recent individual customers to the bank for wealth management and other services.

In the case of Reddit, the corporate said that tens of hundreds of Reddit users participated within the DSP.

“The goal is just to get them into the deal,” Reddit CEO Steve Huffman told CNBC in an interview Thursday. “Like any professional investor.”