Wall Street set for tech IPO let-down
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Evernote, a service for organising personal information across multiple devices, is among the companies that had been tipped to lead a long-awaited revival of tech initial public offerings in the US this year. But it seems Wall Street will have to be patient a little longer.
“I don’t think we’re ready for it right now,” says Phil Libin, the company’s chief executive. “Our revenue is not predictable enough yet, we don’t have enough history of it, the team isn’t at a point where we know how everything should be structured. These are all things that we should figure out before we go public.”
If Mr Libin does not feel any burning need to come to Wall Street, then the fact that he has plenty of cash in the bank has much to do with it. Contemplating the two or three years he expects to take to prepare the 10-year-old company for an IPO, he says: “We have the money to do it so there’s no reason to rush.”
Evernote is not alone. Wall Street investors are getting impatient to get their hands on the next group of hot internet stocks. But some of the best-known names are flush with cash and showing no rush to list their shares.
Brian Chesky, founder of Airbnb, the site for homeowners to rent out their spare rooms, has ruled out taking his company public this year. Meanwhile, Square, a payments company whose private market valuation hit $5bn earlier this year, has also backed away from any immediate plan to list. Industry sources familiar with the group say it is focused on lifting revenues and finding new business lines, making it highly unlikely to come to market in 2014.
Also, while Facebook’s planned $19bn purchase of WhatsApp has whetted investors’ appetites for a new generation of messaging and social media stars, the hottest prospects are a long way from an IPO. Like WhatsApp, they have put all their effort into the race to build large audiences, putting off the job of trying to make serious money for another day.
Pinterest, a social media site organised around pictures, has only recently begun testing an advertising service, despite approaching its fifth birthday – a point at which Google was already preparing its IPO. And Snapchat, which rejected a $3bn offer from Facebook last year, is even further back in the revenue stakes.
Many on Wall Street had been hoping that companies like these would lead a long-awaited revival of US tech IPOs in 2014. Instead, Chinese internet companies Alibaba and Sina Weibo look set to steal the IPO headlines.
Not that the IPO pipeline is not starting to look busy. A batch of US tech companies that sell to businesses are waiting in the wings, promising one of the most active years for fundraising since the end of the 1990s tech boom.
“This clearly is shaping up to be the best year for IPOs in a decade,” said Steve Case, the former head of online service America Online and now head of his own private investment firm, Revolution.
Rightly or wrongly, however, it is the next budding consumer internet giants that excite Wall Street’s anticipation the most – particularly in the wake of Twitter’s stock price surge following its October IPO and the sky-high price paid for WhatsApp.
Many of these companies feel no need to rush – particularly as they try to turn their early stabs at generating revenue into durable business models. Mutual and hedge fund investors have been competing to pour money into mature private companies in the hopes of picking up bargains ahead of an IPO. That has pushed up valuations and reduced the pressure to go public.
“The availability of late-stage funds has created a lot of breathing room for some of these successful companies,” says Lise Buyer, an IPO adviser who worked on Google’s stock market debut a decade ago.
However, the companies that delay their IPOs put themselves at a serious disadvantage for when the next wave of consolidation sweeps across the industry, said Mr Case. AOL pursued a number of acquisitions after its own 1992 stock market listing, helping to cement its position in the run-up to the dotcom boom. “It’s better to position yourself as a consolidator than a consolidatee,” Mr Case said.
Companies that have taken the money to extend their lives as private concerns include Credit Karma, a free site for US consumers to check their credit scores, which last week raised $85m from investors that included Google Capital.
With revenues forecast to reach $200m this year, “we have the financials” to go public, said Kenneth Lin, Credit Karma’s chief executive. He added, however: “We think it will take us a solid 18 months to be in that position.” Given the higher level of regulatory scrutiny public companies operate under, Mr Lin said: “You want to be tidied up for multiple quarters before you even consider it.”
Some fast-expanding internet companies, meanwhile, have shown signs of outgrowing their management teams. Dropbox, the online storage company whose private market value has already risen to $10bn, is only now showing signs of putting in place the senior management group it is likely to need as a public company. That included the appointment as chief operating officer last month of Dennis Woodside, who had previously run Google’s Motorola subsidiary. Dropbox has also yet to appoint a chief financial officer – something that could well put its IPO on hold until next year, according to some experts.
A CFO “is taking on big personal liability” by signing off on a company’s accounts that they were not involved in preparing, said Ms Buyer, making it undesirable to carry out an IPO within a year of naming a finance chief.
That has not stopped other companies moving more quickly: camera maker GoPro appointed a CFO only last month, days before revealing it had filed for an IPO. Yet for those able to attract the highest valuations in the late-stage private markets, the pressure to go public fast is off – no matter how impatient Wall Street is becoming.
Additional reporting by Tim Bradshaw and Sarah Mishkin
Hot Prospects: coveted possible listings for Wall Street
What it does: Online storage company
Amount raised: $607m
Latest valuation: $10bn, Jan 2014
Key dates: October 2011: Reaches 50m users
Nov 2013: Announces new service for businesses, 200m users
Feb 2014: Former Google executive Dennis Woodside joins as chief operating officer
What it does: Payments company led by Twitter co-founder Jack Dorsey
Latest valuation: $5bn, Jan 2014
Key dates: May 2011: Expands with launch of digital wallet service
Aug 2012: Starbucks, pictured, invests $25m and agrees to use Square in its stores
Jan 2013: Chief operating officer Keith Rabois resigns after sexual harassment claims
What it does: Allows homeowners to rent out spare rooms
Latest valuation: $2.5bn, Oct 2012
Key dates: Jul 2011: Homeowner brings bad publicity after claiming vandalism by an Airbnb guest
May 2012: Offers homeowners up to $1m insurance protection
April 2013: Begins to require users to verify their real identities
What it does: A popular taxi-hailing app
Latest valuation: $3.5bn, Aug 2013
Key dates: Jul 2012: Extends car service with the lower-cost UberX
Oct 2012: Pressure mounts from taxi unions, including a lawsuit from taxi drivers in Chicago
Nov 2013: Offers financing plan for Uber drivers to lease their vehicles
Latest valuation: $4bn, Nov 2013
Key dates: Mar 2011: Reaches 1m paying subscribers in Europe
Jul 2011: Long-delayed US launch after reaching a rights deal with music labels
Mar 2014: Secures $200m credit line as it moves closer to an IPO
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