Posts Tagged ‘IPO’

This week marks the return of the technology IPO to Nasdaq after a long hiatus. After a long time we have two venture capital backed companies being listed on successive days – Open Table Inc and Solarwinds Inc, both on Nasdaq.

Open Table operates a restaurant reservation system and has about 10,000 restaurant users while Solarwinds offers network management software. The Open Table IPO was priced almost 40% higher than expected because of unexpected demand. It is a small IPO but its backed by blue chip VC firm Benchmark Capital Partners. Incidentally the existing shareholders sold about 48% of their shares obviously capitalizing on strong demand and high prices.

Incidentally, Open Table lost US$ 1 million last year, made a small profit in its last reported quarter and its patent filing is being challenged.

So we have a small company, offering a simple business proposition (i.e. offering restaurant reservations online), thats losing money, has a legal suit which it apparently has a high chance of losing yet has high demand for its shares and is pricing it above fundamentals! Did I leave anything out? Oh yes, shareholders are selling out a big chunk for a sizeable profit, probably enough to buy that Ferrari they oh, so desire.

Does this mean that “irrational exuberance” is returning to the markets after a 2 year hiatus?

Well Rosetta Stone Inc which IPOed in April jumped 40% on listing.

While I am all for strong IPO markets, such exuberance when the economy is barely recovering is probably a precursor for another rise and big fall somewhere in the near future. Do investors never learn? Sigh!

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