The Shifting IPO Market

Once the Facebook hangover had lifted, Marketo and Tableau had big openings, and Twitter smashed the world on its opening day, the door for IPOs appeared to be wide open. King Digital and Aerohive both pulled the trigger, and Box is on deck.

The market reaction to Aerohive and King has been flat to negative. Even more, Aerohive mentioned that it saw a “deterioration” in the market during its roadshow. The company priced in the middle of its range, $10, and ended the day essentially flat following a late rally. The company traded as low as $8.81.

What’s going on? As Twitter, Facebook, and other momentum stocks have retreated from heights, investor appetite for more of their ilk appears to have tempered. When Twitter was trading over $70, shares of other technology firms appeared more appealing. With Twitter under $50, things are less rosy.

King’s slide from its IPO price isn’t encouraging, either, and the company is profitable to boot. Aerohive isn’t, making its initial wobble understandable. I spoke to the company’s CEO, who confirmed his earlier comments regarding market conditions made on television. Asked if he felt that the situation would persist, he commented that perhaps after a trough things would return to past, more positive conditions.

But that interim is a tough patch for firms like Box that want to go public on the strength of their revenue ramp, and not on their ability to make money. Here’s TechCrunch on Aerohive’s financials before its IPO:

Aerohive has experienced quick growth and widening losses, due in no small part to its growing marketing spend. That expense isn’t surprising, given that the company appears to have worked to expand its top line at the fastest pace possible, even taking on $10 million in debt along the way.

Revenue at the firm was $15.6 million in 2010, $31.8 million in 2011, $66.6 million in 2012, and for the first nine months of 2013, $70.3 million. In the comparable nine-month period of 2012, Aerohive had top line of $47.3 million. So, for the first three quarters of 2013, Aerohive grew just under 50 percent.

Sound familiar? Box is akin to Aerohive in the financial sense, but larger. Another offering out today, digital wellness firm Everyday Health, slipped mildly following its IPO.

If the market isn’t wild about Aerohive — a flat IPO day isn’t a failure, certainly, but it’s not what you wish for, either — what sort of interest investors will have in Box is a more open question. Past isn’t always prelude and history rhymes more than it repeats, but I think it’s fair to say that Box faces stiffer market conditions than existed six months ago. What impact that will have on its flotation I leave to you to suss out.