The Exchange

A little bit louder now — tech IPOs are heating up

Setting aside all the crazy caterwauling about the alleged new tech bubble, the tech IPO market is suddenly getting a lot more interesting.

Recall that it took two weeks into 2014 before the first tech-related initial public offering, babysitting site Care.com (CRCM), hit the market, and then almost another two months for the second. Care.com was a bit of a snoozer, too, rising just below 43% in its first day of trade. But that second IPO, a $220 million deal for data-management firm Varonis Systems (VRNS), was a doozy, as shares nearly doubled on day one. And so was the third tech IPO of the year, last Friday’s $168 million Coupons.com (COUP), also a near double by the close that day. Shares today are basically flat.

There was some irony in the first-day success. Coupons.com CEO Steven Boal founded the company in 1998 in the midst of the first Internet bubble and planned to go public way before 2014. But the company only reached $100 million in revenue in 2012 and just turned profitable in the fourth quarter of 2013.

Varonis was founded in 2005, in the post-bubble era, and is inching toward profitability itself as revenues grow wildly. But expenses, especially marketing spending, are also skyrocketing. And the stock has sold off about 10% on Monday on no obvious news (but amid a broader market pullback).

Two hot deals do not equal a bubble

But two hot deals do not a bubble make. Back in 1999 and 2000, tech companies going public were only 5 years old on average, and three-quarters had sales under $50 million, two warning signs in the academic literature on IPOs. Varonis and Coupons.com both came in above those bubble levels. And it wasn't just two IPOs doubling that signaled a bubble -- more like 163 in 1999 and early 2000.

This week comes Castlight Health (CSLT), a cloud services company focused on the healthcare industry. And next week should see three more-specialized cloud companies come public. Paylocity Holdings (PCTY) does payroll and benefits, Q2 Holdings does banking and Amber Road focuses on international trade.

Admittedly, Castlight looks considerably frothier – revenue last year totaled less than $13 million, which was dwarfed by $34 million of marketing expenses and $15 million needed for R&D, leading to a net loss of $62 million. Still, the company talks big, with claims it can “dramatically” improve efficiency in the $3.1 trillion U.S. healthcare market. Aim high, I guess? It will list on the New York Stock Exchange with the symbol CSLT.

Paylocity, listing as PCTY, is aiming for a smaller market – providing payroll, time tracking and benefits software over the Internet to businesses with 100 employees on average. It’s above the $50 million revenue level ($77 million last year) and operating at just about breakeven with a profit of $617,000. That makes last year’s 40% revenue growth all the more impressive.

Q2 is also a small-market play – aiming to give better apps and Internet services to customers of the thousands of smaller regional and community banks. There’s a huge need there, though net losses are outstripping more-modest revenue gains the past few years. In 2013, revenue of $57 million was up 38% but the net loss of $18 million was more than double the prior year. It will trade as QTWO.

Amber Road sees opportunity in the growing vastness and complexity of global supply chains. Its cloud offering helps the likes of General Electric (GE) and Walmart (WMT) track their inventories and supplies around the world. Revenue grew 21% to $53 million last year but, again, red ink grew more quickly. The net loss of $19 million was almost triple the 2012 figure. It will trade as AMBR.

Still, even if those next few deals take off, they remain in the realm of small potatoes. The real tell comes when the big players arrive – Chinese Internet commerce giant Alibaba, partly owned by Yahoo (YHOO), data storage services Dropbox and Box, and better-known consumer players such as AirBnb and Spotify.

When those firms make public their IPO filings, “all hell will break loose and we may have another 1990s-era frenzy on our hands,” warns Dan Miller-Smith, CEO of Syndicate Pro.

That could be. But let’s not call it a bubble quite yet.

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