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The Nasdaq Composite stock market index is seen inside their studios at Times Square in New York in this file image from April 1, 2011.
Credit: Reuters/Shannon Stapleton
By Clare Baldwin
NEW YORK |
Mon Sep 5, 2011 2:38am EDT
NEW YORK (Reuters) - It's been a rough summer for U.S. initial public offerings after the stock market nosedived, but tech issues could see strong demand after bankers and fund managers return from vacation in September.
The growth promised by tech companies is dramatic and such growth is hard to come by as fears about a European debt crisis and a faltering U.S. recovery persist.
"The demand on the margin will be more for tech than for anything else," said Josef Schuster, founder of Chicago-based IPO research and investment house IPOX Schuster.
Jack Ablin, chief investment officer at Chicago-based Harris Private Bank, agreed. "Tech is growth," he said.
"IPO buyers are like wildcat oil drillers," he added. "They want a piece of everything in the hope that one of the deals works out and they get the next Google."
Harris Private Bank has $55 billion under management.
The two biggest venture-backed tech IPOs currently in the U.S. pipeline are Zynga, the top publisher of games on Facebook that plans to raise up to $1 billion, and Groupon, which offers subscribers coupons for local businesses and plans to raise up to $750 million.
Zynga was founded in 2007. In less than three years, the company increased its revenue to nearly $600 million and turned a profit. This year it is on pace to increase revenue even more, though if the first quarter is representative, its profit will be smaller than last year's.
Groupon is not profitable, but has also grown dramatically. Its revenue has gone from zero when it began operations in October 2008, to $1.5 billion for the first half of 2011.
The company's business model has some question marks, including the fact that it is relatively easy for competitors to mimic it, and drive down its revenue.
Groupon and Zynga declined to comment.
Still, Internet tech IPOs look the most promising of the IPOs set to hit the market. Deals that priced earlier this year have performed well.
Professional networking site LinkedIn Corp (LNKD.N) posted a surprising second-quarter profit following its IPO and projected faster-than-expected 2011 revenue growth. More than three months after its blockbuster debut its shares are up nearly 80 percent above their IPO price.
Likewise, shares of real estate and housing data company Zillow Inc (Z.O) are up nearly 75 percent above their IPO price more than a month after its IPO.
A handful of tech companies are on file for smaller IPOs.
Also on file for big U.S. IPOs are a number of private equity portfolio companies and real estate companies. The success of the real estate companies will largely depend on the dividends they are able to offer. The private equity deals could struggle based on slides in the share prices of other recent buyout-backed IPOs and general investor skepticism about high debt and savvy sellers, experts said.
"Everyone knows (the PE owners) are sellers. They need a more robust environment," said former Wall Street equity capital markets banker Bruce Foerster, who now runs advisory firm South Beach Capital Markets.
(Reporting by Clare Baldwin, editing by Bernard Orr)
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