Looking To Twitter To Reignite Tech I.P.O.’s

Updated, 9:06 p.m. |

Beginning in 2011, the market for technology initial public offerings exploded with a number of blockbuster offerings â€" but went quiet soon after Facebook’s $16 billion stock sale last year.

Now investors and deal makers are hoping that Twitter’s coming stock sale will help the once-soaring technology sector take flight again.

Analysts have estimated that Twitter, the social network, could be valued at more than $10 billion and raise hundreds of millions of dollars, making it the biggest technology I.P.O. since Facebook. That would be manna to a landscape that has been a bit barren lately, although some changes in the technology sector are likely to temper any broad expansion of new stock sales.

About 22 technology deals have priced in 2013, about 17 percent of all I.P.O.’s this year, according to data from Renaissance Capital. That is the lowest percentage of total initial stock sales since 2008, when the industry represented just 10 percent of all deals. By contrast, technology offerings made up 35 percent of new stock sales in 2011 and 30 percent last year.

The trend runs counter to an overall increase in the number of offerings: 132 I.P.O.’s priced this year, up 45 percent from a year ago. Renaissance Capital predicts at least 200 companies will go public by Dec. 31, making 2013 the busiest year for new stock sales since the financial crisis.

Some of that decline for technology deals occurred in the wake of Facebook’s botched offering, which was marred by technical errors that dented the overall market for I.P.O.’s for weeks. And turmoil in the markets this summer, including a drop of nearly 3 percent in the Standard & Poor’s 500-stock index in June, were faulted for a few stock sales that fell short of expectations.

Yet businesses can also afford to be more patient, biding their time before becoming public companies.

“I wouldn’t characterize it as companies not needing to go public, but they don’t feel a rush to go public,” said Cully Davis, the head of technology initial public offerings at Credit Suisse.

The quieting of the technology space is tied in part to changes in the business landscape. One is the passage last year of the JOBS Act, which allows companies with less than $1 billion in revenue to begin the I.P.O. process in secret. That has helped mask the number of would-be debutantes exploring stock offerings.

Nearly every company that qualifies for the JOBS Act has taken advantage, according to PricewaterhouseCoopers. Though it announced its offering plans in a 135-character posting last Thursday, Twitter has availed itself of the law to avoid actually disclosing any specific financial information for now.Another factor is that companies have been weighing their options more cautiously. Would-be I.P.O. candidates have other ways to raise money these days, including private stock sales that let shareholders divest themselves of their holdings.

“Small companies, particularly in the technology area, are deciding that being an independent public company is not the profit-maximizing strategy,” said Jay R. Ritter, a professor of finance at the University of Florida in Gainesville who studies initial public offerings.

For instance, SurveyMonkey raised $444 million late last year from an array of investment firms, in a move that let employees and early investors cash out. It also collected $350 million in new debt financing lined up by JPMorgan Chase.

“This transaction affords us all of the capital benefits of a public offering without the costs and distractions of an I.P.O. and the demands of operating as a public company,” Dave Goldberg, chief executive of SurveyMonkey, the Internet survey company, said in announcing the capital-raising.

Some companies that may go public are also exploring selling themselves, particularly if technology giants like Cisco and Google are willing to pay top dollar. Depending on the bent of existing backers, the promises of a quick payday might trump the possibility of a bigger valuation later.

This year alone, start-ups like Waze, the maker of a popular map application, and ExactTarget, a marketing software company, sold themselves to Google and Salesforce.com instead of pursuing an I.P.O.

Still, one banker said that a majority of companies that weigh a stock offering or a sale ultimately elect to go public.

For all the attractions of staying private, many technology companies still view an initial public offering as a milestone, serving as a branding event and an avenue for further growth.

Wall Street expects offerings from a more companies across all areas of the industry. So far, many have hailed from a few sectors, including enterprise software, advertising technology and communications.

Consumer-focused businesses, which dominated headlines in 2011 and 2012, have made up a small but growing percentage.

Besides Twitter, companies that are on deck for a public offering in the next few months include Chegg, a start-up that rents textbooks to students; FireEye, a cybersecurity company; and Covisint, a cloud computing services provider.

“The pipeline spans across all areas of tech,” said Chet Bozdog, a co-head of technology, media and telecommunications investment banking at Bank of America Merrill Lynch. “There’s a diverse pool of I.P.O.’s coming.”

Analysts and deal makers say investors remain hungry for new offerings despite the occasional big misstep, like those of Groupon and Zynga, both still well below their debut prices.

The most successful companies, these people say, combine high growth rates with a clear map to profitability â€" an actual profit is optional, at least at first â€" and a defensible business plan.Tableau Software, a maker of business intelligence software, has more than doubled its stock price since going public in late May, closing on Friday at $72.70. And stock of Marketo, a cloud-based marketing company, has surged from an I.P.O. price of $13 a share to $34.42 as of Friday.

The model for successful offerings is LinkedIn, the social network whose 2011 market debut enjoyed a pop that others have long envied. LinkedIn excited investors with promises of strong profit and revenue growth and teased them by selling just 8 percent of its total shares, increasing demand.

Since then, it has reported steadily climbing revenue, and has been rewarded with a valuation that has climbed to more than $32 billion from $4.3 billion.

“There’s nothing like a successful business model,” Professor Ritter said.