Wall Street Beat: Tech IPO market cools but some vendors jump in anyway
Though the tech IPO market has gone from a boil to a simmer, some companies in areas such as big data and cloud-related technology are plunging in.
Just this week, business intelligence software provider Tableau Software and cloud-based marketing automation vendor Marketo announced IPO plans. So far this year five tech vendors have launched IPOs, according to the IPOScoop website.
But there’s no doubt that the IPO market for tech has cooled relative to other sectors. For example, already 11 financial companies and six health care companies have issued IPOs in 2013. Going forward, there are more financial and health care companies that plan IPOs than tech companies, according to data compiled by IPOScoop.
In comparison, at this time last year tech was by far the IPO leader, representing 37 initial offerings in the 12 months to March 2012 while the second-ranking sector, consumer services, accounted for only 26 IPOs. What happened?
“There is a strong corollary between technology IPOs and the Nasdaq, which is tech-laden,” said John Fitzgibbon, who runs IPOScoop. “Traditionally, 60 percent to 70 percent of tech IPOs were on the Nasdaq, and the Nasdaq has been a laggard.”
So far this year, the Nasdaq Composite is up 6.8 percent, compared to 12.27 percent for the Dow Jones Composite Index and 9.38 percent for the broad-based Standard and Poor’s 500 Index. Within the Nasdaq itself, the Computer Stock Index is up just 0.42 percent for the year, compared to 10.53 percent for industrials and 14.72 percent for insurance companies.
“It’s an old saying but the tape tells the story — the demand just isn’t there for tech stocks,” said Fitzgibbon. Still, within the tech IPO scene there are hot spots, like cloud-related technology, he pointed out.
Analytics software vendor Tableau, which decided it was time to announce its plans for an IPO earlier this week, is an example. Just last month, Tableau updated its namesake software with connectors designed to allow its users to work with cloud-based data from Google Analytics, Salesforce.com and Google BigQuery. Tableau is seeking to raise $150 million. Unlike other young analytics companies, the company turned a profit last year, earning net income of $1.6 million on revenue of $127.7 million.
Also this week, cloud-based marketing automation vendor Marketo announced plans to raise up to $75 million in an IPO. Marketo’s revenue jumped from about $14 million in 2010 to $58.4 million last year. However, the company lost $34.4 million after spending $37.8 million on sales and marketing.
More broadly, the dip in tech IPOs has taken place within a general levelling-off of public offerings. “U.S. IPO volume was stable in the 1Q13, with 31 deals raising $7.6 billion in proceeds—the US IPO market continued to trend sideways in the first quarter,” according to the latest Renaissance Capital IPO Review.
Renaissance was upbeat about the next few quarters. however. “We expect a pickup in activity through 2013 given the rise in behind-the-scenes filing activity and ongoing strength in the overall equity markets,” the Renaissance report concluded.
The Standard and Poor’s 500-stock Index and the Dow Jones Industrial average have hit milestones in the last month. The S&P rose 6.24 points to end the first quarter at 1,569.19, its highest point ever in nominal terms (not taking into account inflation). Four weeks ago the Dow broke its prior nominal high.
But a weak jobs report from the U.S. Department of Labor Friday sent stocks reeling. About 88,000 jobs were added in March, less than half the forecast of 200,000, according to the Labor Department, indicating that the U.S. economic recovery is sputtering. All major exchanges and stock indexes declined Friday, but the Nasdaq was the worst hit in percentage terms, declining 31.12 points to 3193.88, a dip of 0.96 percent. Computer stocks led the decline, with the Nasdaq Computer Index dropping 1.11 percent.
Whether tech stocks, and tech IPOs, remain relatively weak, will depend to a certain extent on earnings reports, which start to come out over the next few weeks. “Come back a month from now and the situation may be different,” noted IPOScoop’s Fitzgibbon.