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Wall Street Beat: After Facebook fiasco, don't write off tech IPOs

Marc Ferranti | May 28, 2012
The Facebook IPO may have been a fiasco, but don't put the nail in the coffin just yet for other tech offerings this year.

Problems with the Nasdaq computer system on the day of the IPO made matters worse.

The glitches delayed trade notices, and a number of trading firms lost money due to mismatched Facebook share prices. About 30 million shares' worth of trading were affected, the exchange estimated.

The multiple underwriters, the price and size of the offering, the technical glitches, not to mention the nature of Facebook itself, all combined to form a perfect storm unlikely to be repeated.

"It was a one-time event, a media blitz combined with a Wall Street blitz," said IPO's Fitzgibbon.

To be sure, the Facebook fracas may put a near-term damper on tech IPOs from smaller companies and increase scrutiny on earnings results for the quarter.

"The bungled IPO has increased investor skepticism, and this means June quarter shortfalls will be severely punished and near-term hot IPOs more difficult to complete at astronomical valuations," said Canaccord's Davis. "But these are both good things."

The point is that ultimately, the Facebook IPO fiasco may mean that tech companies teeing up for IPOs this year, and their potential investors, will simply be more realistic relative to market conditions.

Out of the 173 IPOs in the U.S. over the past 12 months, 37 have been for tech companies -- more than for any other sector. And there are a number of interesting, up-and-coming tech companies preparing for IPOs this year. Companies mentioned by Davis and Fitzgibbon include firewall-maker Palo Alto Networks, marketing automation vendor Eloqua and SaaS provider Workday.

And while U.S. economic indicators have been mixed lately, they tend to start looking good in the months before a presidential election, Fitzgibbon said.

In a footnote to the week's financial news, Canaccord's Davis noted that Ariba's market capitalization -- its share price multiplied by its number of shares -- peaked at $40 billion 11 years ago. This week, SAP announced it was buying the company for $4.3 billion.

At the right price, you can close any deal.


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