Tech IPO momentum to rumble on

Number of tech public offerings to match or surpass that of 2011 but performances of individual stock, including Facebook's, might not be as rosy as expected, observers note.
Written by Jamie Yap, Contributor

The stream of public offerings from tech companies in 2011 will continue into the new year, with Facebook's much-speculated listing among the top picks, according to market watchers.

Tim Draper, founder and managing director of U.S.-based IT venture capital (VC) firm Draper Fisher Jurvetson, said in his e-mail that he is "very optimistic" about the markets and foresees more initial public offerings (IPOs) to take place in 2012.

Similarly, Michael Yoshikami, CEO and founder of U.S.-based investment company YCMNET Advisors, said this year will be a more active year for public listings, particularly with Facebook's impending IPO fanning the fervor and investors clamoring for more social media stocks.

However, both observers felt that while more tech companies will look to be listed, their market performances might not live up to the initial promise or hype.

Yoshikami pointed out that this year will see the tech industry produce a mixed bag of results and valuations will be "challenged", especially if the global economy slows. Existing social networking stocks, in particular, are likely to underperform given the high levels their IPOs came to market at, he said.

There are also many great tech companies out there, which makes it more difficult to attract attention and raise funds via an IPO, said Draper. As such, companies should also consider other options to gain liquidity, such as being bought out, he explained.

Michael Birnbaum, general partner at Singapore-based VC firm iGlobe Partners, added that the number of tech IPOs this year will match, if not better, the previous year. Should the performance of the earlier IPOs prove to be mediocre, though, this might lead to other companies to hold back from being publicly listed, he added.

There are already signs that the high value of social media stocks might not be sustainable. Social games developer Zynga, for one, opened on Nasdaq at the top end of its stock's price range at US$10 per share. However, the price dropped to US$9.50 per share within the first day of trading on Dec. 16.

Daily deals operator Groupon's share price also took a tumble in January this year, amid fears that merchants were backing away from working with the company.

Yoshikami stated that Zynga's high initial valuation was not surprising given the frenzy for social media stocks then, but the "glamour associated with the sector is starting to wear off".

All eyes on Facebook
Even Facebook's upcoming public offering might not perform as well as the hype it is generating currently.

Birnbaum said that Facebook stock is highly anticipated just because it has been rumored for so long. "It's not necessarily the type of stock to buy and put away for the grandkids", he added.

This is because its revenue growth is not commensurate with the platform's tremendous user base, he stated. Access to certain markets such as China is also still restricted and product innovations have been patchy too, he noted.

"Facebook needs to make people excited to be a member of Facebook, and right now, people are getting a bit tired of the same old," Birnbaum said.

"Also, innovation has not really been its strong point with many product misses. It may be time to start listening to users rather than impose features that the management thinks they should use."

Yoshikami also urged caution for buyers looking to acquire Facebook shares. He said even though a company has great prospects, the high valuation might not always be justified.

"Investors have to sift through current valuations and financial results, coupled with the prospect of future earnings growth to determine if Facebook is overvalued," he said.

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