Magma, which develops software that helps speed the design of chips, priced on Monday at $13 a share, well above analysts' expected range of $9 to $11 a share, and it blew past expectations again Tuesday: Shares of Magma gained 46 percent, closing at $18.99.
The Cupertino, Calif.-based company also increased its number of shares Monday--from 4 million to 4.85 million. The IPO's lead underwriter is Credit Suisse First Boston.
"This is the best first-day performance we've seen since Global Power in May this year," said Richard Peterson, an analyst with Thompson Financial Securities. Global Power Equipment shot up just over 50 percent in its first day of trading.
That isn't saying much, considering the triple-digit gains of initial public offerings in past years and how few technology companies have made it to market this year. This year, 22 out of 84 IPOs, or about a quarter, have been technology companies. Last year, 240 out of 374 IPOs, or about two-thirds, were high-tech businesses, Peterson said.
Nevertheless, Magma surprised analysts with its strong performance, sparking speculation that the IPO market for technology companies could finally be recovering.
"We were positive on the stock but were caught off guard by the price revision Monday," said David Menlow, president of IPOfinancial.com.
Magma's upbeat outcome can be attributed to the recent pickup in successful public offerings in the past week and a solid business model in one of this year's hotter sectors: semiconductor design.
Right place, right time?
In tough economic times like these, the window of opportunity for IPOs has been firmly shut, with only a few individual companies slipping out through the cracks this year.
But last week's surge in new issues could indicate a change.
"We've just come off a very successful IPO week. That loosens up the doors," said Paul Bard, senior analyst at Renaissance Capital's IPO Plus Fund.
Last week, five deals went public. That's over a third of the total that have made it to market since Sept. 11--and most of those 14 companies were health care related.
The only technology company to make it to market last week was money-losing computer game software publisher Bam Entertainment. Shares closed 9 percent higher on its first trading day last week.
"The IPO market has certainly made itself known with the number of pricings last week, and the successful pricing and aftermarket performance (of Magma) today does bode nicely for a trend that could accelerate next year," Menlow added.
The recent surge in IPO activity has been helped by talk that the stock market and fundamentals for tech companies have been improving. "No IPO market is going to sustain itself unless there's improved fundamentals in the high-tech sector," Menlow said.
Magma's business itself is also a reason for its strong performance. Of the few tech companies to go public this year, most have been in the semiconductor design space. The year's top performing IPO, Simplex Solutions, also makes software and services for integrated circuit design. Shares in Simplex are up over 100 percent since their March 20 debut. Verisity is another similar company that went public this year.
"This year, it's a small subset of technology that has done well," Bard said. Simplex, Verisity and Monolithic System Technologies are all players in the semiconductor design space, and all are up considerably from their public debuts this year, he said.
Shares for Magma's public competitors--Avant, Cadence and Synopsys--are all about double their 52-week lows this year.
Magma has a "strong revenue curve," according to Menlow. For the 6 months ended Sept. 30, the company brought in sales of $16.24 million, compared with $3.01 million for the same period in 2000. For the 6 months ended Sept. 30, Magma had a net loss of $12.77 million, compared with $26.09 million in the same period of 2000.
But even if the market establishes its hunger for new technology issues, there isn't much to choose from.
In fact, the only IPO that is slated to price before the end of this year is Prudential Financial, an insurance company.
While filings to go public have picked up recently, with 16 or 17 companies filing in the past month, there has only been one health care company, NeoGenesis Pharmaceuticals, to file in the past seven days.
As far as technology companies go, Netscreen Technologies, a company that specializes in security appliances, and PayPal, an Internet company are the only tech IPOs likely to generate interest in the near future, according to Bard.
Verizon Wireless, a joint venture between Verizon Communications and Britain's Vodafone Group, has also said it will finally complete its public offering by mid-2002 after delaying the IPO more than a year ago.
"Filings have still been coming in a slow fashion," Peterson said. Investors are still nervous after a market ravenous for new tech companies lured many to market prematurely, a trend that resulted in a rash of bankruptcies. "The bar is still very high because of what happened in 1999 and 2000."