The Tech I.P.O. 2008, R.I.P.

There was not a single fresh offering of stock in a technology company to the public in the quarter ended June 30. That kind of goose egg hasn’t been laid since 1978. Don’t expect that to change any time, soon. Let’s look at the last darling of Silicon Valley to go public with the gusto of ‘investors’ behind it. That would be NetSuite, the corporate-software-as-an-online-service company that is a Larry Ellison offspring. The company, now 10 years old, used the auction system to run its initial take up to $26 a share, double the expected $13. That was December 20. The next day, shares almost doubled again, to $46 (see “52-week high”). Christmas was great. But the new year has been wholly unkind. Sure, NetSuite is still losing money. That wasn’t news then and it’s not now. It’s narrowing the losses, and revenue is up 43% over a year earlier. Including payments for stock-based compensation, the company lost $3 million on revenue of $36.6 million in the second quarter. Along the way, it bought and digested its first acquisition, the project software-as-a-service company, OpenAir. But you would think the company was holding collateralized debt obligations or some other form of mortgage industry hocus-pocus. You sure can’t blame it on general malaise in the economy – when a company is growing 43%, year over year. Since it hit that high on Dec. 21, NetSuite’s shares have slid almost 70%, to a low of $15.19. It’s up to $16.15, as this is being typed. Here’s what the plunge looks like:
Here’s how it compares to the general performance of this bearish market, using the S&P 500 for comparison.
And here’s what the market pretty much equates NetSuite to: A company that has written off about $44 billion of assets since mid-2007 and, today, is ponying up another $10 billion to buy back another exotic instrument that is failing, the auction-rate securities its customers hold. This would be Merrill Lynch and here is how Zach Nelson’s bear and John Thain’s bull stack up:
Put them all together, and the stock market itself looks pretty good. And NetSuite shares the cellar with an outfit that so far can’t seem to throw the junk out of its house fast enough.
As long as shares of a new tech issue like NetSuite are stuck in this kind of vortex, no software or hardware entrepreneur in right mind should want to get in the water.