Tech’s hot summer iced over in August.
Until the European financial crisis and debt-ceiling fiasco, Silicon Valley companies were sizzling on Wall Street. Investors gobbled up public offerings from Pandora and LinkedIn and hungrily awaited the stock-market debut of coupon giant Groupon.
How things have changed.
Seventeen companies that were slated to go public this month have either abandoned their plans or put them on hold. With a mere four offerings this month, August will be the slowest month for IPOs since July 2009, according to the Associated Press.
Companies that issued IPOs before the recent market roller coaster have seen their values shrink in recent weeks. Among the newbies, real-estate site Zillow’s shares currently trade at $23.96, a 57 percent stumble from its IPO price; radio service Pandora’s stock hovers at $12.10, down 40 percent from its debut; and Chinese social media site Renren’s trades at $7.30, a 66 percent drop from its summer premiere.
Even LinkedIn, with its solid revenues and past record of profitability, was stung. Though its stock has started to rebound, in the wake of the Standard & Poor's credit downgrade of the United States, the site's shares tumbled 17 percent. It currently trades at $78.62, after rising as high as $122.70 the day it went public.
“It’s an environment where people are not wanting to take risks,” Michael Yoshikami, CEO of YCMNet Advisors, told TheWrap. “It will have a chilling effect. A number of the companies going public have been fairly speculative, and what you’re starting to see is investors getting more selective in how they invest in companies.”
Groupon, the online coupon company, still plans to proceed with its mid-September IPO. But excitement for its offering has waned after its accounting methods were questioned by the SEC.
Off the public market, bids for Hulu are due Wednesday. The video-sharing service has drawn interest from companies such as Yahoo and Google, and could sell for between $500 million to $2 billion.
But at least those mega-watt brands are moving forward. Overalll, the tech market, both public and private, has chilled along with the overall economy.
It’s a sharp contrast to the way the summer kicked off: With valuations for web and social media companies climbing into the tens of billions, May was reportedly the busiest month for tech IPOs since 2000.
Based on all the activity in the digital sector, analysts speculated that nearly 250 companies would go public this year, the most since the country slid into recession in 2008. So outsized was the thirst for web companies that some analysts were bracing for another tech bubble.
Those bullish projections went up in smoke along with the rest of the stock market -- and the new tech bubble, if indeed there was one, didn’t have time to inflate that far.
“Any time you have this amount of uncertainty and exaggerated volatility and the market contracts, you’re not going to find a receptive audience,” Mike Hickey, an analyst with Janco Investments, told TheWrap. “The focus is on profitability and it’s going to be less about growth. For the IPOs like Pandora that aren’t generating a lot of cash, it’s going to be a struggle.”
Though the downturn has left many tech companies reeling, analysts expect that the major players such as Facebook and Zynga will still find an appetite for their stocks when they come to market over the next year. A big or record-breaking IPO may even help reinvigorate other battered web stocks.
“If Zynga and Facebook go public that changes the momentum and it changes the downturn around this sector,” Om Malik, founder of Giga Omni Media, told TheWrap. “What Google was when it went public, that will be Facebook or Zynga.”
Malick and other analysts speculate that while the technology has not been immune to the downturn, it is better positioned to rebound once the markets rebound.
“There were so many people calling it a bubble, but I don’t think this is the end of whatever that was,” Eric Jackson, founder of the investment firm Ironfire Capital, told TheWrap. “I think this is a correction that will last for a few weeks. We’ll take a step back and then tech companies will resume their upward climb. There will be a crash someday, but I don’t think it will happen now.”
Though investors may be temporarily gun shy, analysts also expect that venture capital firms and angel investors will still be willing to pony up the startup funding and additional rounds of capital that tech companies need to see them through the lean times. Technology, they claim, still represents the biggest upside for investors.
“There is vast oceans of hot cash out there in the global marketplace looking for return on investment,” Paul Saffo, a technology forecaster at investment firm Discern Investment Analytics, told TheWrap.
That may also explain why those who work near the center of the tech industry, like Saffo and Malik, say that the skies seem far brighter in Silicon Valley than they do over the New York Stock Exchange.
Moreover, the technology sector has shown a far greater tolerance for the ups and downs of financial markets than more traditional industries.
“Silicon Valley lives with risk every day,” Saffo told TheWrap. “Innovation is an irrational act. Species only do it in the biological world when they’re under stress, so risk is embedded into our architecture. It’s well within our comfort zone.”