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That Tech IPO Bubble? There’s No Such Thing

All we're seeing are healthy companies going public


It’s not easy getting attention on the Web these days. It takes a certain skill to be heard over the shrieking mass of blog posts and mindless tweets — and for the not-so-skilled there is always the cheap gambit of provocation: Just sound the alarm of a dire problem, whether it exists or not.
The IPO bubble of 2011 is one such example. Do a quick search on “IPO” and “party like it’s 1999” and Google (NASDAQ:GOOG) will dish up 189,000 pages in the last year alone. I don’t know about you, but I find that Prince’s sugar-coated, apocalyptic anthem has held up far better than the dot-com jokes it still inspires. Those jokes were tired back in 1999, and have only grown lamer since then.
Not that there aren’t worrisome signs in the way that web startups are being valued these days. Investors are lining up to buy shares of Facebook at a $52 billion valuation. Twitter is supposedly worth $10 billion and Groupon and Zynga aren’t far behind.
But these are private companies not even in the IPO queue. In fact, most of them are bending over backward to stay private. Facebook even pushed for — and won — an exemption from the Securities and Exchange Commission to stay private even though it may have more than 500 shareholders, a milestone that normally makes an IPO a legal obligation.
And if you look at companies waiting to go public, the signs of a bubble simply aren’t there. True, Pandora and LinkedIn have filed for IPOs even though Pandora posted a loss last year and LinkedIn, which posted a profit, says it expects to swing to a loss again this year.
But neither Pandora nor LinkedIn is a throwback to the IPO market of the late ’90s. Back then, too many startups went public without any realistic hope of making a profit in the next several years. Investors were invited to prop up money-losing enterprises — never a winning proposition — and they plunged in because nearly all dot-com stocks
were surging once they hit the markets.
That was a mania. That was a bubble. What we are seeing so far in 2011 is neither.
In healthy IPO markets, it’s not at all uncommon for companies to tap the public markets if they need capital to expand – provided they can show they have a reasonable chance of profitability in the next year or so. Biotech, cleantech and semiconductor startups routinely go public under those conditions. A sober look at the income statements of Pandora and LinkedIn put them also in this camp.
Nor is it clear that the IPO markets are heating up as tech companies file for easy money. So far in 2011, 23 companies have filed to go public in the U.S., according to Renaissance Capital, compared with 30 in the first two months of 2010. And six companies have withdrawn their IPOs from the pipeline — a sign that investors are rejecting IPO
candidates not ready for prime time — compared with four in early 2010.
We may yet see a tech IPO bubble by the end of the year. We could see Facebook or Twitter go public and surge to such an absurdly high price that it opens the floodgates of money-losing Web startups into the stock market.
We may see that, but we aren’t seeing it right now. What we are seeing are tech companies who have a decent shot at going public throwing their hat in the ring — which is how it should be. If there is any mania concerning stocks right now, it’s in the alarmist news stories and blog posts warning of a return to a dot-com IPO bubble.

Article printed from InvestorPlace Media,

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