The great, rumbling electrical storm that was the Twitter IPO has passed. The stock vacillates a little below the $45.10 opening price. For a while, Twitter might as well have been the IPO market, and that IPO market seemed a little loopy, a place where seasoned investors lined up for a piece of a company that was still seeing losses growing at an 89-percent annual rate.
Twitter’s IPO was such a media event that many people who profess little or no interest in the stock market were bringing up the IPO. Each time this happened with friends or shopkeepers or home contractors, the central idea they had of the company was that it was growing fast but losing money just as fast. Twitter had rebranded the tech IPO – maybe not the Kool-Aid stand it was 13 years ago, but still a kind of silly circus.
As the dust settles, however, it’s becoming clearer that investors in public markets don’t have such a linear view of IPOs. There have been a number of tech startups that have gone public in recent months, with less attention and fanfare but also with a better picture of the IPO markets.
The most recent example is Zulily. The flash-sales site is one of the rare ecommerce companies to brave public waters recently. But it received a warm welcome. Zulily initially priced its shares between $18 and $20, then raised the price to $22 a share.
On Friday, the stock rose 72 percent to $37.70 a share. Twitter, by comparison, also rose 72 percent on its first day. Zulily saw revenue grow 116 percent in the first nine months of this year, faster than Twitter’s 106 percent growth. And Zulily has also been growing its customer base faster than Twitter has been growing its members.
Twitter’s IPO was positioned as the anti-Facebook, but in some respects Zulily is the anti-Twitter. It swung to an operating profit of $107 million in the first nine months of 2013, generating $30 million in cash. The company is based in Seattle, founded by two middle-aged guys who worked previously at Blue Nile, and it approached the public markets with a silence as deafening as the fanfare that accompanied Twitter’s IPO.
Of the 203 companies to go public so far this year, 40 of them came from the technology industry, according to Renaissance Capital. They raised $7.2 billion, or 15 percent of the total IPO proceeds this year, lagging health care, energy and finance in money raised. However, tech companies have higher returns than those industries. On average, their stocks rise 29 percent on the first day of trading.
Some of the strongest post-IPO returns have come from tech IPOs. Two Beijing-based startups – online classified site 58.com and Baidu-owned travel site Qunar – listed on US exchanges in late October. 58.com has since doubled its $17-a-share offering price, while Qunar is just shy of doubling its own $15-a-share price.
Silicon Valley-based Veeva Systems, a cloud-software company focused on the life-science industry, has seen its stock rise 93 percent since its mid-October debut. And in the biggest post-IPO return of the year (or the most money left on the table, depending on how you view it), Friedberg, Germany-based voxeljet is trading 354 percent above its $13-a-share offering price on Oct. 17.
All four companies have gone public in the past month. Except for Qunar, all have posted profits in recent quarters and can make a case they will deliver steady profits long before Twitter does. None of them may ever have the user base and name recognition of Twitter. But investors don’t seem to mind: They’re willing to ignite rallies for these lesser-known stocks that are performing better than Twitter.
On the other hand, Chegg, an online-textbook rental company, went public last Tuesday at $12.50 a share and ended the week 27 percent lower. Since 2007, it’s racked up $167 million in operating losses. In the first nine months of the year, Chegg posted an operating loss of $43 million off revenue of $178 million. Like Twitter, Chegg has the potential for long-term growth, but investors seem less tolerant of the company’s inability to become profitable.
Are these signs that the IPO market is still rational, or losing its marbles? A little of both. It’s encouraging that growing companies that go public with the promise of profits are being welcomed so warmly. But look at voxeljet, a maker of 3D printers. The company is valued at $920 million, even though its sees its revenue growing 33 percent to $15 million this year.
On Friday, voxeljet rose 13 percent after the company said it posted a profit of $285,000 in the third quarter. Last year, the company had a profit of $276,000, although it showed a loss of $489,000 in the first six months of this year. At 60 times its estimated revenue, voxeljet is even more expensive than Twitter, riding on the sudden demand for investments in 3D printing. The company may be profitable, but it’s valuation is hard to justify.
In short, there’s evidence to argue that speculation in recent IPOs is happening, but there’s also more level-headed investment in lesser known but profitable companies like Zulily. Twitter may have grabbed headlines, but the crop of tech IPOs this fall shows that, for now, there’s demand aplenty for startups braving the public markets.