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Twitter files as struggling tech IPO market shows some life

September 12, 2013|By Chris O'Brien
  • Twitter has filed for an IPO. Above, Chief Executive Dick Costolo.
Twitter has filed for an IPO. Above, Chief Executive Dick Costolo. (Sebastien Nogier / EPA )

Twitter can expect to face some serious headwinds as it moves toward its public offering of stock. But there may also be some reasons for optimism. 

First, the reasons to worry.  

Yes, the overall IPO market in the U.S. has continued to recover as 131 companies have gone public, an increase of 44% from 2012, according to Renaissance Capital.

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However, those filings have been led by the healthcare and financial industries. Tech has struggled to ride this wave.

So far in 2013, 22 tech companies have gone public, raising $2.3 billion, according to data from Renaissance Capital. That puts the industry well behind the pace of the last three years, when the annual number of tech IPOs ranged from 37 to 44.

In fact, only 18% of IPOs have come from the tech sector. That's the lowest percentage since 1993. And that contrasts with the dot-com era, when close to 70% of IPOs were tech related. 

Wait, it gets worse. 

Of those tech companies that have managed to squeak out the door over the last two years, most have been in the business of security, data or infrastructure of some kind. 

Consumer tech offerings have been persona non grata on Wall Street for a couple of years, thanks to the poor showings of companies like Zynga and Groupon.

Finally, outside of Facebook’s mammoth IPO in 2012, the IPOs have been smaller in recent years. Of the 24 California companies to go public this year, only one raised more than $250 million.   

But there are signs that the clouds may be parting for tech IPOs. 

For instance, Facebook had been seen as one of the downers. But now its stock is trading well above the IPO price last year.

And it's not just Facebook. The companies that have gone public, while fewer and smaller in size, have performed quite well after their debut. 

"The increase in IPO issuance has been a result of strong returns of recent IPOs in post-IPO trading," said Kathleen Smith, IPO Fund manager at Renaissance Capital. "So far this year, the Renaissance Global IPO Fund is up 43.2%."

And because of those factors, Renaissance is projecting a rush of IPO filings in the final months of 2013.

The firm says we should see at least 70 more IPOs in the fourth quarter, hitting a total of 200. That would the best overall since 2008, when the financial crisis slammed the IPO door shut for many industries.

Tech should also be a higher percentage of those offerings, as firms including FireEye, Benefitfocus, Chegg and Covisint are all expected to make their debuts on the public markets. 

If that momentum carries into early 2014, when Twitter's IPO is likely to happen, the social media company's timing may turn out to be just right. 

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