With the rout of tech stocks intensifying on Wednesday, companies hoping to go public in the sector had better head for the hills. As first mentioned when this sector-specific market crash began, the IPO window is closed (unless your name is Alibaba).
First, take a look at the price action in some of the recently public tech companies, especially those in the no-profit, fast-growing cloud services area. Data center specialist A10 Networks (ATEN) is off 29% from its IPO price, babysitter website Care.com (CRCM) is off 42% and medical data service Castlight Health (CSLT) is off 17% (and almost 70% from its first-day high).
Larger companies used as comparables for tech IPOs have also been killed, carnage which continued Wednesday. Online security specialist FireEye (FEYE), which went public last September, dropped 24% in morning trading and has lost 70% from its all-time high reached way back in the heady days of early March. Cloud benefits service Workday (WDAY) was off 6% for the day and 41% from its recent high. And Twitter (TWTR) was down another 5% after falling 18% on Tuesday, when many employees could sell their shares for the first time. It's off 59% from its all-time high.
The impact has been as swift as it was predictable. Bloomberg reports smartphone software maker Iron Mobile and network gear-maker Arista Networks, which had both expected to go public shortly, have pulled back and will try to price in June if market conditions improve.
Higher-profile deals for online storage service Box (which has made a public IPO filing), and room rental agency AirBnb and payment service Square, which haven’t yet, are also said to be on hold. And deals once anticipated for the second half of 2014 for music service Spotify, storage provider Dropbox and others now look unlikely as well.
Still, two tech companies this week filed expected share price ranges, a move that typically indicates they are close to completing their offerings and hitting the market. Zendesk, which provides online customer support, is looking to sell shares at $8 to $10, valuing the profitless company at over $600 million. And TrueCar, the car shopping website operator, filed for a price range of $12 to $14, or an estimated value of $1 billion. Both could be a pretty tough sell in this ugly market.
Alibaba, which is partially owned by Yahoo (YHOO), the parent of Yahoo Finance, may be the exception that proves the rule. With mighty revenue growth and huge profit growth that puts Amazon (AMZN) to shame, the Chinese e-commerce giant looks like a safer bet to many investors than most already public companies in the sector. That could entice some investors who might otherwise be willing taking a flyer on smaller and riskier IPO deals.
“The Alibaba IPO is overshadowing much of the tech sector at present,” says Dan Miller-Smith, CEO of Syndicate Pro, which tracks the market. “With the weak aftermarket performance over the past few months, many of the money-losing enterprise tech offerings will be shelved until market conditions improve.”
Improve? How about just stop these gasp-inducing crashes?