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MAKE MONEY BLOG$~In the wake of Facebook’s disappointing post-IPO performance, one of the questions that has to be asked is whether the IPO market for high-tech companies has been dealt a killer blow.
With a few exceptions such as LinkedIn, the shares of many technology companies have floundered after they started trading publicly. Some examples include GroupOn and Zynga, which had lots of hype but have plummeted since their IPOs.
This is not to suggest all high-tech IPOs are doomed, but it does put the spotlight on three realities:
1. The excitement about the high-tech sector, particularly the start-up landscape, is palpable. This explains why there has been a flurry of IPO filings this year. When investors get excited about a particular sector, supply usually moves in to meet demand as some companies and investment houses recognize an opportunity to raise and make money.
2. The high-tech marketplace is a fickle and unpredictable beast. One day, you’re riding high; the next, the scene is completely different as consumers shift their focus and new rivals emerge on the scene. It makes it difficult to attain any kind of economic consistency, which is hardly the ideal scenario for investors.
3. Being a publicly-traded company is a different world for high-tech companies. The expectations are higher and there is more scrutiny of their operations and strategic decisions. Combined with the marketplace’s volatility, the results of high-tech companies can be up and down depending on a variety of factors. Again, this does not make it a stable landscape for investors.
For high-tech companies, an IPO may become a challenging proposition as more investors become reluctant and skeptical about offerings, even much-hyped ones.
This may put the emphasis on the M&A market as stronger, well-financed high-tech companies look to fill strategic and tactical holes.
An example is Salesforce.com’s $70-million purchase of GoInstant, a two-year-old startup with 12-employees that developed a co-browsing service. And, of course, there is Facebook’s $1-billion acquisition of Instagram.
What do you think? Is the IPO market for high-tech companies dead in the water?
Source: forbes.com
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