A Closer Look at Technology Companies and IPOs

For high-tech companies going the initial public offering route, maybe taking a low key approach is a better way to IPO. Take a look at these recent online consumer companies with big IPO splashes that didn’t fare too well in 2011.

Since their IPOs, Groupon (NASDAQ:GRPN) is down 31% from its offering price; Pandora (NYSE:P) is off about 40% and Zynga (NASDAQ:ZNGA) is down 15%.

Not all technology companies have performed poorly since their IPOs; some lesser-known companies serving businesses have found success. Data-protection company Imperva (NYSE:IMPV) has risen 32%; ServiceSource (NASDAQ:SREV) is up 20% and Jive Software (NASDAQ:JIVE), which sells for a corporate audience, is flat after its recent strong mid-December launch.

But not every enterprise IPO will set the world on fire. The online marketing company Responsys (NASDAQ:MKTG) is down 40% from its IPO price.

Why have some of these companies succeeded and others haven’t? One explanation is the consumer companies’ IPOs came with high expectations that couldn’t be met in the short term. Note their IPOs are less than a year old.

Cloud-based technology companies find success

One successful area in the public markets from 2011 are cloud-based technology companies serving businesses. It’s not just in IPOs, either.

Before last year’s end, SAP announced plans to buy the cloud-based human resources company SuccessFactors (NASDAQ:SFSF) for $40 a share (52% premium). Two months earlier, Oracle (NASDAQ:ORCL) said it would buy the cloud-based company RightNow Technologies (NASDAQ:RNOW) for $43 a share (20% premium).

These companies bring established competition and markets with them, according to the New York TimesThey don’t have to branch out in a new area such as a company like Zynga, who could pose a threat to Stratego .

According to Scott Weiss, an Andreessen Horowitz partner, “Oracle (NASDAQ:ORCL), Cisco (NASDAQ:CSCO), BMC Software (NASDAQ:BMC), Microsoft (NASDAQ:MSFT), Computer Associates (NASDAQ:CA), Semantec (NASDAQ:SYMC) — there is probably a trillion dollars in market capitalization between these guys and others that is up for grabs.” He added that by having many established cloud-based enterprise companies in the marketplace, “there is a lot less pixie dust in enterprise companies, too. Companies like Salesforce and NetSuite are public, with real profits and growth, so a new company has nowhere to hide.”

One example of a company facing challenges because it is in a new area (online marketing) is Responsys. The company has had a dismal performance in the public arena. The leader in its field, Omniture, was taken over by Adobe (NASDAQ:ADBE). Other companies such as the email marketing company ExactTarget is preparing to go public but it also may have a tougher time than cloud-based human resources company Workday–also expected to go public this year–because it is a lesser known company.

As cloud-based enterprise companies find success in the public market, it may spur others in the field to also conduct IPOs. And with companies going public, they’re also finding corporate public relations from it.

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To contact the reporter on this story: Debbie Baratz at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com