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Tech IPOs: Dynamic Duo Debuts?

Initial Public Offering

The death and rebirth of the tech IPO has been foretold so many times this year that it’s a wonder Edgar Cayce hasn’t shown up, with Nostradamus in tow.

Much ado about not much came when Blue Coat filed for an IPO and then got snapped up by Symantec, at least for a hefty return on investment for its private holders.  And thus we are still with only two tech IPOs thus far, for real.  There may be some light at the end of the tunnel, though one wonders given the impact to FinTech, online lenders and other publicly traded firms, whether in reality an oncoming train is throwing off that light.

As noted by Seeking Alpha, there are two tech IPOs on the horizon, and both show promise and peril in a marketplace fraught with both.

One firm, Twilio, is likely to hit the public markets this week, with Line coming, well, down the line next month.  The valuation test is the real test, where retail and institutional investors will be able to take over the same mantle held by private holders (and where funds have in the past marked down their holdings).  It could be the case that enthusiasm trumps cynicism.  But that’s a big maybe.

The tech firms debuting in the next few weeks are themselves following the same strains of growth with lack of black ink on the bottom line, and the Twilio model is one predicated on VOIP and messaging, which may seem quaint in a day where apps rule. But, as Seeking Alpha notes, 86 percent top line growth is nothing to sneeze at, if expenses can be reined in.  The P/S ratio of roughly 7x may seem palatable, if it is the sole (and in the absence of steady bottom line may have to be the sole) metric, but there are other reasons to wonder if and when that multiple may push higher.  The shares are slated to price Wednesday night and the offer is at $12 to $14.

Turning to a firm that lies beyond the U.S. shores, Line, which a Japanese firm offering a messaging app.  The firm has already been through the IPO wringer, having pulled a debut two years ago.  The tech firm has a service suite that goes beyond messaging to include eCommerce, and local advertising.  The valuation, noted the site, has come in at $5 billion, way down from the $9 billion implied just two years ago, indicating some real conservatism among investors especially in landscape that has become marked by big, well-funded competitors like WeChat and KakaoTalk in China and South Korea, respectively.  The onus is on the firm(s) to show how profits can be sustained; and for now the phrase that should govern the marketplace is: caveat emptor.

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