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LinkedIn Soars, Pandora Crashes: IPO Market Alive And Well!

Fin - Daily Ticker - US

After a decade in which almost no tech companies went public, the IPO market for hot tech startups is finally alive and well.

Professional social network LinkedIn went public a few weeks back in a spectacular debut. Even after a steady decline in the stock price since then, the company is still valued at around $7 billion, or more than 10X this year's expected revenues

Earlier this week, online radio pioneer Pandora went public. Despite immediately getting hammered with a "SELL" rating by analyst Rich Greenfield of BTIG, an independent firm, the stock is still trading above the expected offering range, valuing the company at more than $2 billion.

And other Internet companies like HomeAway, BankRate, Groupon, Zillow, and Yandex have gone public or have filed to go public.

Some have taken the surge of Internet IPOs as a sign of a "new tech bubble," but the truth is it's nothing of the sort. So far, most of the companies that have gone public are mature companies, with significant revenue and earnings. They are the sorts of tech companies that usually went public in the two decades leading up to the tech bubble, and their growth (and growth prospects) are the reason that investors should be excited by a resurgence of tech IPOs.

Also, unlike the IPO market of the late 1990s, in which most tech IPOs saw huge first-day "pops" in which their stock prices traded way above their IPO prices, the reaction to the current crop of tech IPOs has been far more mixed. And this is healthy. A market in which every investor who participates makes money encourages recklessness and stupidity--the cocky giddiness that often goes hand in hand with market bubbles. In contrast, in today's IPO markets, investors who pay too much for IPOs get burned. And that's the way it should be. This will discourage reckless risk-taking and dissuade folks who should never even consider buying risky tech stocks from buying them.

The barriers to going public are still high, but the market has clearly "opened up" versus where it was a couple of years ago. This is a good thing. Not only for tech companies, which can now access a new source of capital and liquidity, but public-market investors, who will once again have more companies they can consider investing in.

See Also: No, It's Not A New Tech Bubble, But There Are Other Things To Worry About