NEW YORK (CNN/Money) -
The initial public offering window for tech companies has opened enough to let in a crack of fresh air. But it's premature to call this a big comeback.
There have been four tech-related offerings that have done reasonably well in the past few months, and two more are due in the coming week. That may not sound like a lot but it's a good sign given the drought of the past three years.
IPayment, a credit card processing company, went public in May and surged 32 percent on its first day of trading. Last month, semiconductor testing firm FormFactor gained 26 percent on its debut day. And most recently, two consumer electronics companies, Digital Theater Systems and InterVideo, which makes DVD software, popped 47 percent and 33 percent, respectively.
IPOs with profits? Imagine that.
Sure, none of these offerings came anywhere close to the triple-digit percentage gains enjoyed in the late 1990s by the likes of Theglobe.com, VA Linux and Akamai Technologies.
But that's probably a good thing.
| * as of 2pm on 7/23 | | Sources: Renaissance Capital, CNN/Money |
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The few tech companies that are going public are not just fly-by-night firms with little more than catchy sales gimmicks (Pets.com, anyone?).
FormFactor, Digital Theater Systems and InterVideo all are profitable and iPayment is expected to post a profit this year.
"The apples are riper. Tech companies going public are more established compared to the ones at the time of the bubble," said Kathy Smith, research analyst with Renaissance Capital, which runs the IPO Plus Aftermarket fund.
The two tech firms set to go public before the end of the month also are profitable. IPass, which makes software for businesses that allows workers to remotely connect to a corporate network, is set to price its offering Wednesday evening, and start trading Thursday. The company posted a $29.8 million profit on sales of $92.8 million in 2002. IPass hopes to raise $70 million.
And Netgear, which makes computer networking equipment for homes and businesses, is on tap to go public next week. This company is in a hot area (Cisco bought its competitor Linksys in March) and earned $8.1 million last year. Netgear plans to raise $84 million in its offering.
Not a return to the late 1990s frenzy
Still, investors shouldn't count on a huge wave of tech IPOs, said David Menlow, president of IPOfinancial.com. That's because many private companies still are losing money and investors are more discriminating than they were three years ago.
"There's been a wholesale shift in investor mentality," Menlow said.
In addition, some private companies may find that selling out is still a better option than going public. For example, software company Crystal Decisions agreed to sell out to Business Objects last week after registering for an IPO in May. The company, a spinoff of storage firm Seagate, had a lot of buzz behind it.
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And of course, the wounds investors suffered from IPOs that were hyped by the firms that brought them public and subsequently tanked during the bear market are still fresh.
Menlow said that despite increased scrutiny on Wall Street firms for their roles in various IPO scandals, which among other things included doling out stocks of hot IPOs to high-profile corporate executives in order to win investment banking business, individuals still have a tough time getting shares of IPOs at their offering price.
When a company goes public, usually a small amount of shares are sold and the majority of them are typically given to institutional investors at the offering price. So the individual is often forced to buy IPOs at a much higher price once the stock begins trading. InterVideo, for example, priced at $14 a share but opened at nearly $20 a share.
Tech IPOs, even the profitable ones, remain risky. And no matter how well they do in their first few days of trading it's usually safer to wait and see how the company does in the first couple of quarters before making a bet on it.
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