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Tech Firm IPOs Are Growing

Google may be the best known to go public since the bust, but others are on the way.

April 30, 2004|Alex Pham | Times Staff Writer

With all the Mother's Day bouquets safely sent, Bill Strauss took a moment last spring to stop and smell the roses -- and caught whiff of a budding opportunity.

The chief executive of San Diego-based Provide Commerce Inc., an online florist that operates, noticed that as the stock market and economy started to bloom, a pocketful of technology companies like his were going public.

"We always like to pick our heads up after Mother's Day and see what's happening," said Strauss, who founded Provide Commerce in 1998 and kept it alive as countless e-commerce firms established during the tech boom died on the vine.

Last year, he said, "we felt the market was turning."

So seven months after Mother's Day, on Dec. 17, shares of Provide Commerce started trading on Nasdaq, raising about $35 million.

A day earlier, online travel service Orbitz Inc. netted $95 million in an initial public offering of its own.

Google Inc. may be the most recognizable start-up to go public since the Internet bubble burst, but more and more tech firms are for the first time in years finding bankers and investors eager to back them in the public markets.

In the first three months of this year, nine technology companies issued IPOs, raising a total of $1.6 billion. In the first quarter of 2003, just one tech company, Telkom, went public, raising $486.5 million.

More are on the way. In March, 13 technology companies notified the Securities and Exchange Commission of their intent to go public, the most in a month since October 2000, according to Thomson Financial.

"It's not as though banks have been waiting for Google," said Richard Peterson, chief market strategist with Thomson Financial. "They're just going ahead and taking advantage of the current environment."

Driving the resurgence: a stable stock market, good economic growth and demand from investors, particularly institutional buyers such as hedge funds that allocate a portion of their spending to new companies.

Granted, the number of companies and the amounts they are raising seem tiny when compared with the Gold Rush mentality of the late 1990s, when it seemed anyone with a business plan was a billionaire-in-waiting. In the fourth quarter of 1999, for instance, 132 companies raised $17 billion in the public markets.

Unlike then, though, many of the companies going public today have genuine bottom-line profits.

"This time around, the quality of the companies is certainly higher," said Tom Taulli, author of "Investing in IPOs" and an adjunct professor of corporate finance at USC. "They generally have strong sales growth, seasoned management and a strong, sober business model."

Provide Commerce, for example, reported a profit of $170,000 on $23 million in sales for the last three months of 2003.

"Back in 1999, we had bankers calling us all the time asking if we wanted to go public, but we just felt we weren't ready," Strauss said. "Our criteria was to have predictable revenues and predictable profits."

Management at Chicago-based Orbitz felt the same way.

"The travel business can be volatile," said Carol Jouzaitis, spokeswoman for the company, which was founded by five major U.S. airlines six months before the Sept. 11, 2001, terrorist attacks. In the last three months of 2002, Orbitz posted its first profit.

"So the lesson was: When there's a window of opportunity, take it, because you never know when the next window will come," Jouzaitis said.

Some companies whose windows closed when the tech bubble burst are getting second chances.

Sirf Technology Holdings Inc. in San Jose initially filed with the SEC to go public in 2000 but held off its IPO until last week, raising $132 million. IPass Inc. in Redwood Shores, Calif., planned an IPO in 2000 but delayed the offering until July, when it raised $98 million.

Companies, however, are finding a tougher audience.

"In 1999, if you had a fairly credible story, you could take a company public," said Jack Lazar, who was chief financial officer for NetRatings Inc. when the New York company went public in December 1999 and is now CFO for Atheros Communications Inc., a Sunnyvale, Calif., semiconductor company that raised $126 million in its February IPO. "In 2004, you need to show profitability, significant revenue growth, a competitive strategy and positive cash flow right away. There's definitely more scrutiny from investors now."

Regulators also are paying more attention, Taulli said.

"The SEC has suspended trading for any stock that shoots up too fast," he said. "They're definitely more vigilant now. It's a much different market compared to four, five years ago, which ultimately is a healthy sign and makes for a more sustainable IPO market."

Stocks of technology companies that have gone public since Dec. 16, when Orbitz started trading, have been mixed, averaging a 3.7% gain, said analyst John Fitzgibbon of The Nasdaq composite index has gained 1.8% in the same period.

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