Tech Industry

Patience is a virtue in high-tech IPOs

How was the market for high-tech initial public stock offers recently? Mixed. While a record dollar volume was raised by the total IPO market last November, the average gain for newly public companies that month was the worst in more than two years.

How have high-tech IPOs gone lately? It all depends on how you look at it.

Overall, fewer companies have made it to the initial public offering of their stocks, making recent activity less than robust, if not downright poor. For example, while a record dollar volume was raised by the total IPO market last November, the average gain for newly public companies that month was the worst in more than two years. The following month saw 35 IPOs price with not a single one coming to market above the high end of the anticipated price range listed in its original registration statement.

January of the current year saw a mere 19 IPOs completed--the lowest number on a monthly basis for the year's initial month since 1995, when 18 deals were priced. That month saw just $960 million raised from all IPOs, excluding closed-end funds, which represented the lowest January for IPO proceeds since 1991, when $735 million in deals were completed.

But if volume was low, results were good. Those IPOs that managed to make it to market experienced high average first-day gains and respectable after-market gains as well.

The dozen tech IPOs priced last November (excluding unit offerings), posted a smashing average first-day gain of better than 13 percent, about twice that of non-tech IPOs. Among those moving to the forefront that month were Applied Micro Circuits (AMCC), whose shares soared more than 45 percent in its first day as a public company. Likewise, RealNetworks (RNWK) climbed over 43 percent during its first day.

In December, no tech IPO managed to come to market at above its expected, typically high, price range. Those that did complete their offerings saw continued after-market price gains. In fact, the 11 tech deals priced that month registered an average gain of 13 percent between their offer dates and their first trading days. Through February 6, tech IPOs experienced an average gain of about 35 percent between their offer dates and first days of trade.

Though January saw but three deals completed, the month was marked by the debut of VeriSign (VRSN), which broke two long-standing IPO records. First, the deal was the first IPO to come to market above the high end of its original filing range since November of last year. Second, the issue, priced at $14 on its offer date, surged 82 percent on its first day of trading. That represented the best first-day percentage gain by a tech IPO since the debut of @Home (ATHM) last July, when that issue climbed 112 percent during its first day of public trading.

While tech deals have outpaced the IPO market in general recently, the forward calendar exhibits less than a strong commitment to tech IPOs by professional investors. Just 14 deals are expected to price between the remainder of this month and early March. Among the more notable are semiconductor manufacturer Amkor Electronics' $402.5 million issue, expected this week, and an upcoming $120 million offering by regional telecom Advanced Communications Group. One potential yellow flag, however, is that both these issues were initially filed last October.

Another deal with a prolonged filing period is an expected $56.6 million offering by Delphi Engineering Group, expected later this month but filed late last September. The IPO with the longest waiting period appears to be Stream International. The software company initially filed to go public on April 30, 1997. Now--nearly ten months later--it expects to complete its offering next week.

If patience is a virtue, then--at least when it comes to high-tech IPOs--extreme patience is extremely virtuous. Good things are coming to those willing to wait.

Richard Peterson writes regularly about high-tech IPOs in Marketwise.