November 08, 2013, 4:33 PM — Despite the frothy headlines stirred by Twitter's initial public offering, tech is not in a bubble of the sort that arose before the 2000 dot-com crash.
There is no doubt, however, that the stock market is hot, and that has led to a spate of IPOs. After setting an IPO price of US$26, Twitter shares shot up to $50.09 Thursday before closing at $44.90. Shares closed at $41.64 Friday, but the company's market capitalization was still about $22.5 billion. Not bad for a company that has yet to make a profit.
Twitter is just the marquis name in a roster of other tech companies that have gone public lately. Just this week, security and storage company Barracuda Networks, telecom networking software provider Mavenir Systems and Web development platform maker Wix.com went public.
Technology companies are riding a wave of IPOs. There were 32 public offerings in October, more than in any other month since November 2007. With a total of 15 IPOs launched this week alone, November could bring an even greater number of offerings.
The fundamental reason for all the IPO activity is simple. "A strong stock market means a good IPO market," said John Fitzgibbon, who runs the IPOScoop website.
Despite consternation stirred by U.S. political infighting about the deficit, the federal government closure over a budget squabble in October and the so-called "sequestration" spending cuts, the market has been flying high. The Standard & Poor's 500 index is up 23 percent and the Dow Jones Composite index is up 21 percent for the year. Meanwhile, the New York Stock Exchange is up 22 percent and the tech-heavy Nasdaq is up a whopping 28 percent for the year.
Still, the IPO market is hardly in a bubble, Fitzgibbon said. "We're running at about 180 IPOs per year now, compared to a 30-year average of about 360," Fitzgibbon said, adding that in 1999, right before the dot-com crash, there were 543 IPOs.
Even a banner week like this week does not necessarily indicate a bubble. Of the four IPOs scheduled to launch a day after Twitter on Friday (all non-tech), one cut its IPO price, one launched within range, another was rescheduled until next week and another has been postponed with no fixed date. "That does not look like a bubble to me," Fitzgibbon said.
Within the general IPO market, tech is doing well but other sectors have launched more offerings this year. Out of all the IPOs that generated more than $100 million, the tech sector is in fourth place in terms of number of deals, behind the financial, health care and consumer sectors, according to data from Renaissance Capital.