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Can Jack Dorsey and Tinder put the sexy back in IPOs?

Aaron Pressman
Can Jack Dorsey and Tinder put the sexy back in IPOs?

It's been a dull, depressing year for initial public offerings of technology companies, suffering not just from a lack of volume but also a lack of excitement, with all the big names like Uber and Airbnb sitting out.

That could change -- or at least start to change -- on Wednesday when tech IPOs get back a little sexiness, literally. Among the deals expected to be priced after the market closes is Match Group, the IAC/Interactive Corp (IACI) spinoff that owns a bunch of popular dating sites as well as the hook-up app du jour, Tinder. The market also gets one of the more well-known Silicon Valley startups complete with charismatic-leader-who-may-be-the-next-Steve-Jobs in Jack Dorsey's Square.

"This could be a very telling week for the IPO market," says Kathleen Smith, principal at Renaissance Capital, which runs several IPO funds. "We're trying to find a level that works. This could open things up for 2016."

Underwriters expect to set the initial share prices for the two companies on Wednesday night with trading set to open Thursday morning. Payments processor Square, expected to price from $11 to $13 per share, will take the symbol "SQ." Match Group is looking for $12 to $14 and will hit the market with the symbol "MTCH."

By any measure, 2015 has been a dismal year for tech IPOs, one of the growth engines of the stock market in the past. Only 19 deals worth a combined $5.7 billion have been priced so far this year, down from 43 and $8.7 billion last year, according to Ipreo. And that includes last month's $2.8 billion First Data (FDC) offering, a slow-growth, former leveraged buyout that doesn't much resemble a typical hot growth startup.

Performance of newly IPO-ed commpanies has been lackluster at best. This year's tech offerings have lost 2% on average, according to Renaissance, and some tech deals have done much, much worse. Among some of the better-known deals, online craft market Etsy (ETSY) priced at $16 a share back in March and hit a high of almost $36 before crashing to earth -- it's trading at less than $9 currently. Online storage play Box (BOX) priced at $14 in January, quickly hit almost $25 but has since slumped to under $13.

Most recently, peer-to-peer online lender LoanDepot pulled its deal while flash drive supplier Pure Storage (PSTG) has barely budged from its $17 IPO price. Not much to entice the largest private companies, the unicorns and decacorns, as they're known, to follow.

But that could all change if Square and Match Group hit the market with a solid debut.

Neither company will be priced for perfection, which should help improve the initial reception. Of course, neither company deserves to be priced for perfection, as significant questions swirl around both deals.

Square has lost money since inception almost seven years ago, thanks in part to an ill-conceived, money-losing card processing deal with Starbucks (SBUX). That's now ended, but the question remains just how profitable Square can become in the typically low margin, commodity business of processing shopping transactions.

"Square made its name on serving an underserved market, a market that was underserved because no one wanted to help them specifically because they were unprofitable," says James Wester, an analyst at IDC. "Getting to profitability looks to be far off. Clearly they know how they need to get there, but it’s the when part that is harder to determine."

No surprise then that Square's promotional video for investors put all of the emphasis on the vast and loyal customer base of some 2 million small- and medium-sized merchants the company has already attracted. While Square executives gave boilerplate, buzzword-laden quotes in front of bland white backgrounds, energetic Square customers spoke excitedly at colorful storefronts about their devotion to the company and its plastic card readers.

The growth play has two dimensions -- get more, larger customers and sell each customer more services in related areas like payroll, analytics and working capital.

But public investors don't appear to be convinced that the company should be worth the $6 billion valuation private investors adopted for Square last year (subject to some protective measures). Based on the early reception, the company will go public at a value of only about $4 billion -- and will have to issue additional shares to some of the earlier private investors thanks to the protective measures.

The problem with Match isn't about money, at least not the money that the company brings in. Love-seeking customers have poured cash into the company's coffers at an impressive rate. The issue with Match is corporate parent IAC and its chairman Barry Diller, who seem perfectly happy to strip out as much of that cash as possible before sending Match out into the world on its own.

Still, investors may not care. There looks to be plenty more cash coming in.