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Where’s that tech IPO bubble we were promised?

The Exchange
Where’s that tech IPO bubble we were promised?

The long-anticipated 2014 tech IPO bubble is having some problems getting inflated. So far this year, there had been almost no activity – just one small deal for babysitter website Care.com (CRCM). And, on Friday, data security firm Varonis Systems (VRNS) hit.

That’s a bit surprising given the hype coming out of 2013. The super successful debuts of tech companies including Twitter (TWTR), cybersecurity firm FireEye (FEYE) and 3D printer maker ExOne (XONE) came amidst 222 companies in all sectors going public raising $55 billion in total, the best year for IPOs since 2000.

With the high valuations of some of last year’s class – not to mention the rally in other hot names such as Netflix (NFLX) and Facebook (FB) – many have already been throwing around the B word:

Will 2014 be the year the tech bubble bursts? -- Wired, December 16, 2013

Beware the tech bubble – Wall Street Journal, December 29, 2013

New data show the tech boom is looking more and more like a bubble  – Business Insider, January 20, 2013

Is there a new tech bubble? – Bloomberg, February 6, 2014

But despite the hype, there’s been no bubble so far. Care.com raised just $91 million and has lost almost all its first-day pop. Priced in January at $17, the shares hit $29.25 on day one but have since fallen back to $19.60.

And while the overall IPO market was booming last year, tech sector IPOs raised only $7.9 billion, according to Renaissance Capital, less than either of the prior two years. Among members of the 2013 class that exploded by doubling on the first day of trading, only one was a tech company, Benefitfocus (BNFT). The rest were mostly restaurants such as Potbelly (PBPB) and Noodles & Co (NDLS).

Better to sell out than to go public?

“While there may be a bunch of tech IPOs in the pipeline, what is actually noteworthy is how few there have been,” says Jay Ritter, a professor at University of Florida who has long tracked the IPO market. “Most successful tech companies are still finding it better to sell out rather than go public,” Ritter adds, pointing to the astounding $19 billion purchase of mobile messaging service WhatsApp by Facebook.

Activity is about to pick up, however. Some small deals like camera maker GoPro and discounter Coupons.com are close to pricing but the most anticipated – and controversial – deal is probably from King Digital Entertainment, the parent company of the world’s most addictive mobile game, Candy Crush Saga. Investors are debating whether King is a one-hit wonder that may be prone to a crash like prior mobile gaming wonder Zynga (ZNGA).

King disclosed in a February 18 SEC filing that it had profits of $568 million on revenue of $1.9 billion last year. Some 124 million people a day play King’s hard-to-put-down games, though the filing also contained some signs that interest in Candy Crush may have already peaked.

Chinese ecommerce giant Alibaba will likely raise even more massive amounts in its IPO. The company is 24% owned by Yahoo (YHOO). Messaging service Line, popular in Asia, is also expected to offer shares in the United States later this year. After the WhatsApp deal, shares of Line should be in high demand.

Hot tunes

Music and media are also hot, as two well-established public companies, Netflix and Pandora (P), have risen to sky-high valuations in the stock market. Spotify, a streaming online music service, signaled in a job posting it might be preparing to go public. And some expect Beats Music, another streaming player, could also go public later this year.

Even with competition from Apple (AAPL), Google (GOOG) and others, Pandora has continued to increase its ad revenue and listenership. The company’s shares are up 43% in 2014 and 212% over the past year. And although it saw a loss of more than $27 million last year, the market values Pandora at more than $7 billion.

“This is a situation where you can thank your competition,” says Ryan Aynes, Co-Founder of ad agency EDGE Collective in New York. “The hype around streaming music has benefited them.”

The massive media campaign Beats ran at the Super Bowl demonstrated the kind of marketing  that often signals at intent to go public, Aynes says.

Shazam, a service that helps users identify music they hear, just raised additional venture capital last year and probably isn’t in a position to go public soon.

Among other tech possibilities, GrubHub Seamless, the online takeout and delivery food service, publicly disclosed its IPO filing on Friday. The company, which has 3.4 million active users and connections to 28,000 restaurants, is seeking to raise $100 million. The Wall Street Journal also reported this week that online-marketing software company HubSpot was prepping for a public debut.  And online storage companies Box and DropBox are also expected to debut later this year.

When they do, the bubble chant may rise. Just remember to check the numbers.