BREAKINGVIEWS-Soaring drone IPO is likely to fly off-course

By Robert Cyran

NEW YORK, March 19 (Reuters Breakingviews) - Autonomous drones have changed the course of warfare. They have not, as yet, upended certain truisms of the equity markets. After an initial public offering by autonomous guidance software developer Swarmer SWMR.O on Tuesday, its stock popped 520%, suggesting a brave new world for politically-connected upstart defense contractors. History strongly suggests otherwise.

Headquartered in Texas but founded in Ukraine, the company does have a lot going for it. The widening conflict in Iran is burning through U.S. stockpiles of drones and tools to defend against them, so autonomous weapons sales should rocket. The firm says that its systems have seen real-world use following Russia’s 2022 invasion. It also counts Erik Prince, a supporter of Donald Trump and founder of private-security contractor Blackwater, as board chair, which should presumably help land government contracts.

The valuation, however, doesn’t make any sense. The stock rose another 77% on Wednesday, giving the company a market value over $700 million, assuming Lucid Capital Markets — notably, the only bookrunner on the IPO — exercised its overallotment option. The company recorded just $309,920 in revenue last year, meaning it is valued at more than 2,000 times trailing sales. Big rivals Lockheed Martin LMT.N and General Dynamics GD.N are valued at about 2 times. Swarmer’s operations also lost over $5 million, and one of the risk factors in the prospectus is substantial doubt about its ability to continue as a going concern.

Or consider the track record of similar floats. Data collected by Jay Ritter, a professor at University of Florida, shows that smaller companies enjoy the biggest first-day pops, with those below $10 million in revenue rising on average 24%. But they went on to deliver the worst average return over the next three years, averaging a loss of 16%, and lagging the overall U.S. equity market by 53%.

There’s another bit of precedent. Swarmer’s debut leap is reminiscent of conservative media outfit Newsmax’s launch onto public markets in 2025, when it soared 720% on its first day. Again, the company was aligned with Donald Trump, but lost money. Shares are down 97% from their peak. Drones are more essential, especially in a time of rising conflict. But they can still crash.

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CONTEXT NEWS

Swarmer, which develops software to control groups of autonomous drones, raised $15 million in its initial public offering on March 17, selling 3 million shares at $5 each. The company’s stock closed at $31, or a 520% increase, before rising again sharply on March 18, resulting in Swarmer having a market capitalization exceeding $700 million, assuming the underwriter, Lucid Capital Markets, exercises its overallotment option.