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Wall Street Beat: Tech IPOs heat up but there's no bubble -- yet

Marc Ferranti | March 17, 2014
The tech IPO market is coming back, just don't call it a bubble.

There are a host of companies focusing on software as a service, cloud, advertising, analytics and so-called Internet-of-things technology that are set to ratchet up to the $100 million dollar revenue level or are already there, Jones said. These companies have much more solid business models than many of the companies going public in the dot-com era, he said.

"It's all about the fundamentals," Jones said.

"This is very different than what we saw in 1998 and 1999; these companies are real companies with core fundamentals, solid product margins and the ability to cover costs," Jones said. "And they are a lot more mature than the companies in 1998 and 1999." In those years, the average age of companies going public was 4.5 years, now it's about 13 years, Jones said.

Meanwhile, companies offering cloud-based technology are in the spotlight, agreed Fitzgibbon. The latest tech IPO launched Friday, as Castlight Health, a provider of cloud-based software to manage healthcare costs went public, he noted. In early afternoon trading, shares were selling at $38.13, up a whopping $22.11 from its opening price.

In the U.S. since last Labor Day holiday break, the unofficial start of the autumn season, the average gain for all IPOs was 123.1 percent from their initial offering price. Additionally, 10 were up 100 percent or more, Fitzgibbon said.

According to IPOSCoop data, IPOs scheduled for next week include Amber Road, a provider of cloud-based global-trade management solutions; Paylocity Holding, which offers cloud-based payroll and human-capital management software; and Q2 Holdings, which designs secure cloud-based virtual banking solutions.

Also, two tech companies filed plans to go public last week: Five9, a provider of cloud software for contact centers, and Opower, which offers cloud-based software for the utility industry.

Still, the volume of IPOs by itself doesn't amount to a bubble — at least not yet, Fitzgibbon said. After Nimble Storage went public in December, the next tech company to go public was data-security vendor Varonis Systems at the end of February. And even though more tech companies are coming to market with the IPO pipeline looking full, "two swallows do not make a spring," Fitzgibbon said.

Probably more importantly, Fitzgibbon agrees that the quality of companies going to market is different than it was during the dot-com era.

"Now you see real companies coming to market, not some fantasy football games," he said.

 

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