By Martha C. White
Tech investors are sidling up to the bar again after?the "Facebook hangover," only this time they are minding their P's and Q's.?
"In a sense, the tech IPOs are back," said Francis Gaskins, president of IPODesktop.com. Only seven tech or Internet companies have gone public since Facebook's IPO; by comparison, Gaskins said now there are 20 technology companies in the IPO pipeline. The difference is that the offerings are smaller and priced to lure institutional investors rather than emotion-driven retail investors.
"In general, institutional investors are more excited about the B2B companies," said Jay Ritter, a professor of finance at the University of Florida. "They?re not as prone to overvaluations because of the consumer name recognition."
On the other hand, individuals tend to place too much emphasis on?personal experience, he?said. Facebook's messy IPO and subsequent drop in valuation threw cold water on the IPO hopes of other consumer tech and Internet companies.?
"For the serious IPO investor, Facebook is history," Gaskins said. "The retail people will never stop talking about it."
Facebook's CEO Mark Zuckerberg tried Tuesday to soothe investors' frazzled nerves, asking them to be patient while the company improves the site and develops more products. His appearance alone, after what seemed like weeks of silence while the shares stumbled and then languished, helped lift the social network's shares by 3 percent Tuesday.?The shares rose a further 1 percent by mid-afternoon Wednesday.?
Institutional investors are more focused on the tech sector's growth potential,?if the?NASDAQ's recent climb is any indicator, Ritter said.?
"The idiosyncratic nature of the Facebook IPO notwithstanding, it was not a fertile environment" for IPOs earlier this year, said?Steve Wood,?chief market strategist for Russell Investments. Worry over European contagion and market volatility pushed investors into safer assets, he said. This fall, many of them are?again displaying a greater appetite for risk.
This risk is unlikely to extend to other consumer-oriented Internet companies, at least in the near future. "Online advertising can disaapear tomorrow. Users can disappear tomorrow," said Sam Hamadah, founder and CEO of research company PrivCo. "Public investors can't deal with that lack of visibility."
Forthcoming IPOs for technology companies that sell cloud-based or software as a service (SAAS) solutions are likely to be well-received, Hamadeh said. As an example, he pointed to?Palo Alto Networks, which went public in July at $42 a share and closed Monday at nearly $72. Many of these types of companies work on a subscription model, which assures would-be investors looking for evidence of a steady revenue stream.
Hamadeh said real estate listing website Trulia.com, which filed a preliminary, confidential IPO prospectus in July and followed up with a public IPO filing last month, could be an exception to investors' aversion to consumer-oriented tech IPOs.?
Unlike Facebook, users' shift from desktops to mobile devices benefitted Trulia, Hamadeh said. One primary revenue stream is subscriptions to real estate professionals, and it has just one main competitor, which is thriving. Rival real estate site Zillow.com went public in mid-2011 and last month reported quarterly earnings of four cents a share, versus just breaking even a year earlier.?
"I think it?s going to help consumer Internet [companies] to some extent if it performs well, which we expect it will," he said. "Right now I feel investors are walking on eggshells and the IPO market is walking on eggshells."
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