Wall Street Beat: Facebook rides wave of tech, Internet IPOs

AVG Technologies' IPO Thursday may be a warning about high-priced offerings, however

Facebook may end up being the biggest name on the IPO calendar this year, but it's also part of a trend in which technology, and particularly Internet companies, are outpacing public offerings from businesses in other sectors.

Tech companies could also help spark a comeback for public offerings in 2012, after an IPO slump last year.

The worldwide market for IPOs in 2011 generated 338 offerings in all, down 29 percent from 2010, according to a recent report from Renaissance Capital. The slump has been widely attributed to, among other factors, slow growth in the U.S. economy and sovereign debt in countries including Greece and Italy, which caused concerns about the possible breakup of the eurozone and chaos in financial markets. The economic concerns also caused market volatility that made it difficult to price IPOs.

Nevertheless, in the U.S., 24 Internet companies launched IPOs last year, according to Renaissance Capital. The report also noted that "four of the five largest US Internet IPOs ever -- Bankrate, Groupon, LinkedIn and Zynga -- raised $2.4 billion."

Technology has led the IPO charge during the past year. In the past 12 months, tech companies accounted for 37 IPOs in the U.S., according to IPO Scoop.com. That's 11 more IPOs than those offered by consumer services, the sector ranking second in public offerings in the past 12 months.

The number of Internet companies going public last year was more than for any year in a decade. But that doesn't mean there's another dot-com-type bubble happening. Last year's number of Internet IPOs was below the 212 Web-related public offerings in 1999 and 114 in 2000. In addition, as Renaissance points out, the average return on Internet IPOs last year was negative 17 percent -- hardly a bubble.

"2012 is shaping up to be a good year," said John Fitzgibbon, who runs IPO Scoop.com. There was more IPO activity in the first weeks of this year than at the beginning of any year since 2005, he noted.

Based on that comparison, if IPOs keep up the pace set, there will be many more public offerings in 2012 than in 2011, Fitzgibbon pointed out in a research note. "The 2005 calendar was to turn out 236 IPOs. That was 68.7 percent more IPO traffic than 2011's 140," Fitzgibbon said.

However, while a jump in the number of IPOs may be the result of a more stable market, in terms of share prices, and possibly increasing confidence in the economy, early investors always take a risk.

For example, shares of AVG Technologies, which makes PC and mobile antivirus software, dropped in its market debut Thursday. Shares had been offered to investors at US$16, but dropped to $13.00 at the end of the trading day. Shares slipped a further $0.05 in after-market hours. Further, the decline happened on a day in which the Nasdaq Computer Index rose 5.82 points to 1,524.28.

At the offering price, AVG's price-to-earnings ratio was about 15, according to analyst estimates, which made the shares more costly than those of Symantec, which is in the same business and whose shares trade at a P-E ratio of about 11.

Facebook's prospectus, filed when it registered its IPO plans with the U.S. Securities and Exchange Commission Wednesday, indicates the company is looking to raise $5 billion. That may be amended before the actual IPO launch, noted Fitzgibbon.

However, AVG's performance Thursday, and the return so far from Internet IPOs in the past 12 months, could serve as a cautionary note to Facebook that even though tech companies may lead a resurgence in IPOs this year, confidence in the economy and in tech may not be so high as to warrant exorbitantly high offering prices.

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Marc Ferranti

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