2HRS2GO: IPO slowdown hurts good companies

It's too bad the iffy IPOs had to ruin things for the rest of them.

Judging by the performance of recent IPOs, investors seem exhausted by the flood of new technology issues over the last couple of months. In many ways, that's good, because the last thing the market needs is another money-losing, dot-com-business-strategy-of-the-month trying to grab money from the public, a la Comps.com or Juno Online.



Is the tech IPO market shot?



Unfortunately, as in any purge, innocents get hurt. And it's mostly innocents no one ever heard of, which makes their plight all the more pitiable.

Take IT Staffing Ltd., for instance. It's a Toronto-based company with absolutely nothing revolutionary about it. As the name implies, the firm provides tech personnel to other companies. IT Staffing has miniscule revenues (just shy of $8.8 million for the first three quarters of last year) and microscopic profits ($326,288).

It's also a company whose top line is growing at more than 150 percent annually, while income growth trails that just slightly. Things aren't likely to slow down anytime soon: As the likes of Mastech Corp. (Nasdaq: MAST) and Cotelligent Group Inc. (NYSE: CGZ) can testify, staffing is hot and getting hotter as companies find it easier to outsource their IT services.

As with any company, there are risks with IT Staffing, of course. It's a small-cap stock -- today's offering only includes 1.1 million shares at $5 apiece -- going public with investment banks few in the U.S. market have ever heard of. It has to live with Canadian exchange rates. And it's trying to break into the fiercely competitive U.S. staffing market.

Even with all that, I admire the company's pluck. IT Staffing is at the stage where a company should go public: it's established, profitable, and needs capital to expand and build upon its success. That's far preferable to the Internet charlatans that technology investors have thrown money at over the last few months.

Given its niche and size, IT Staffing likely wouldn't have drawn much attention in any market. But with technology investors having collapsed beneath the weight of recent offerings, the company faces even more of a problem. In the face of today's market pullback, IT Staffing hadn't even dared go public as of mid-afternoon, although the company has already released the obligatory self-aggrandizing news release touting the public offering.

That's a shame, because IT Staffing is one of those rare tech IPOs that isn't trying to cover up its inadequacies with a Web veneer, or portray itself as the greatest thing since the creation of the Kama Sutra. Like many other small companies out there, it's just chugging along as a solid business. But in today's climate, that doesn't seem like enough anymore.

Other issues:

  • Marimba Inc.
  • (Nasdaq: MRBA) Speaking of iffy IPOs, it's impressive to see one whose underwriter actually turns out to be objective. Morgan Stanley Dean Witter, which helped take this niche software vendor public, has begun coverage of Marimba with a "neutral" rating.

  • Adobe Systems Inc.
  • (Nasdaq: ADBE) The company is cutting 250 jobs, but it does expect second quarter operating results to beat analysts' estimates. I like to cherish these few instances when I'm actually right.

  • Barnesandnoble.com
  • (Nasdaq: BNBN) Looks like the number two online bookseller won't have that distribution advantage, since parent company Barnes & Noble is abandoning its purchase of Ingram Book Group. It's nice to see that antitrust law works sometimes -- it would have been a very bad thing for the book industry's leading physical store retailer to be controlling distribution for its chief online rival, not to mention much of the industry as a whole.

  • Yahoo Inc.
  • (Nasdaq: YHOO) The Web portal operator announced plans to spend another $80 million in Monopoly money, a.k.a. stock, to buy a maker of software that provides Internet access to devices such as televisions, personal digital assistants, or data phones.

    I know the latest fads are "information appliances", but with PCs getting cheaper all the time, is this really going to be such a big deal? If the current price trend continues -- no guarantee of that, but there are no guarantees for anything, including info appliances -- people might well replace their TVs with PCs. Then again, $80 million in stock is hardly noticeable for a company with a market cap exceeding $26 billion.

    As mentioned above, the overall technology market continued retreating today. With two hours left in regular trading, the Nasdaq Composite Index was down 33.80 to 2378.23, the S&P 500 had fallen 10.09 to 1284.17, and the Dow Jones Industrial Average had slid 89.29 to 10506.97. 22GO>

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