Budding Technology Companies Are the Ones to Watch in the IPO Market, Analysts Say
NEW YORK (AP) — Though the initial public offering market has settled into a quiet period — with no deals pricing until after Labor Day — analysts are optimistic about the potential for the technology sector in the coming months.Investors, still aglow from the successful IPO of virtualization software company VMware, are looking for the next big technology company, said Scott Sweet, managing director of advisory firm IPO Boutique.
The timing is right for many tech companies that rose from the ashes of the dotcom bust to go public, said Paul Bard, a vice president of Renaissance Capital's IPOHome.com.
As of this time last year, 16 technology or technology-related companies had gone public, according to Thomson Financial. So far in 2007, 32 technology-focused companies have made their stock market debut.
For the past few years, many budding technology companies have subsisted on venture funding and have reached a certain level of maturity, Bard said. Now, the venture capitalists who invested in those companies are looking for an exit and the preferable route is to go public.
Of all the planned IPOs in the tech sector, NetSuite Inc. is by far the most promising, analysts say.
The provider of on-demand business management software, which is controlled by Oracle Chief Executive Larry Ellison, filed an initial prospectus in July.
Though the company has yet to record a profit and faces competition from such industry giants as Intuit Inc., Microsoft Corp. and SAP, its revenue has grown nearly four times in two years to $67.2 million in 2006. NetSuite also boasts 5,300 active customers.
"NetSuite would have to be considered right up there with the best (of those) that have filed," IPO Boutique's Sweet said.
Salesforce.com Inc., one of NetSuite's biggest rivals, has proven that the concept of "on-demand" software can produce impressive returns. Salesforce.com has reported more than $36 million in profits since going public in 2004, helping to nearly quadruple its shares from the IPO price of $11.
Other technology companies of interest include data storage providers EqualLogic, 3Par and Compellent Technologies.
Like NetSuite, these companies have yet to post a profit.
"Certainly investors want to steer clear from companies that have questionable or bad fundamentals," Bard said. "But just because a company isn't profitable doesn't mean it has bad fundamentals."
The key, Bard said, is going to be their ability to turn a profit shortly after going public. Investors want some evidence that the companies are on their way to profitability.
.