No Bubble in the Offerings

The newly invigorated IPO market may look like a Ferrari, but peek under the hood and it's more like a respectable Toyota.

Although initial public offerings are hitting the market faster than at any time since the bubble collapsed, returns to shareholders aren't even close to the returns of the boom years. The 104 companies that have gone public since June 1 have, on average, posted aftermarket gains of about 24%, a solid but hardly spectacular performance. Some shareholders may be disappointed, but the relative sobriety is a sign of health, and undermines arguments that investors have once again lost discipline.

"It's a very definite contrast to the bubble years -- investors are being careful about new issues," said Silicon Valley stalwart Sandy Robertson, now a partner of Menlo Park, Calif.-based Francisco Partners, a technology-based buyout firm with about $2.6 billion in assets.

More careful indeed. There's nothing among the recent crop of IPOs to compare with companies such as Commerce One(CMRC), which debuted on July 1, 1999, at $101 a share and ended that year at $982. Or Internet Capital Group (ICGE), which rose about 1,300% in the five months following its IPO in August 1999. (As a reminder that past IPO performance is no guarantee of future returns, Commerce One closed Wednesday at $1.76; ICG at 35 cents.)

More proof that it's not 1999 all over: Tech stocks have lost their starring role in the more sober atmosphere of 2004. While the 21 information technology-related companies that debuted in the past eight months gained an average of 14.6% post-IPO, 15 pharmaceutical and biotech offerings appreciated by an average of 42.3%. Even real estate investment trusts, hardly the stuff of bubble-era dreams, are outperforming tech.

Tech IPOs the Star No More Aftermarket performance of IPOs shows technology offerings underperform

*Information-technology includes semiconductors, software and services, as well as telecom, e-commerce retail and computer hardware. Source: IPO Vital Signs.com

One big reason for technology's unspectacular performance is there's no "next new thing" to capture the imagination and send investors scrambling for their wallets. "You could catch the wave of the Internet or [business-to-business software] in 1999. Now what's out there?" said Daniel Morgan, a technology fund manager with the Noble Financial Group.

Still, it would be a mistake to underestimate the marked upturn in the IPO market in the last few quarters.