LendingClub leads end-of-year push for tech IPOs
The market for technology IPOs is regrouping for an end-of-year rally. After a few months of quiet following Alibaba’s (BABA) record-breaking deal in September, underwriters say seven technology-related companies could go public this week and next, raising over $1.5 billion.
That should help push the total raised for the year over $40 billion, the most for tech IPOs since 2000, according to Dealogic. Minus the $25 billion raised by Alibaba, however, the total would be closer to the average $12 billion a year raised over the past four years.
Among the upcoming deals, two online lending platforms, LendingClub and On Deck Capital, are hogging most of the investor enthusiasm. The remaining grab bag of cloud-based software providers and a Chinese Internet company are getting a somewhat less-excited reception, if only because investors remember how badly similar highly touted IPOs of the spring performed.
LendingClub, a marketplace for personal and small-business loans, has already upped its price range this week, a signal of strong investor interest. The San Francisco-based company expects top price shares between $12 and $14, up from $10 to $12, valuing the currently unprofitable loan matchmaker at close to $6.5 billion on a fully diluted basis.
The largest of the so-called peer-to-peer loan startups, LendingClub has helped match lenders and borrowers on $6 billion worth of debt since it launched in 2007. The company takes a fee on each transaction but doesn’t lend its own capital. Revenue in the first nine months of 2014 totaled $133.8 million, up 142% from the same period last year. But expenses grew quickly, too, turning a 2013 profit of $4.5 million into a net loss of $23.9 million this year.
On Deck started at the same time but has facilitated only $1.7 billion of loans. It focuses more on small businesses and makes loans up to $250,000. Revenue for the first nine months of 2014 was $107.6 million, up 156%. Its net loss for common shareholders of $24.2 million was 18% less than last year.
“We’re highlighting LendingClub,” says Kathleen Smith, principal at Renaissance Capital, which manages exchange-traded funds aimed at IPOs. “It’s been profitable, has high growth and they just raised the pricing range.”
If the shares do well once they hit the market on Thursday morning, that could bode well for On Deck’s IPO next week.
Among the other tech debuts, several companies may hit the public market at valuations below their most recent rounds of venture capital. Hortonworks, which helps companies use the open source data processing software Hadoop, was valued at $1 billion in the spring but looks to go public at about half that amount.
New Relic and Workiva are similar to the many cloud-services companies that went public in the spring. New Relic helps companies tap into massive amounts of real-time data they may collect, while Workiva is a cloud-based solution for filing to the U.S. Securities and Exchange Commission. Both face substantial competition and unproven markets, notes Francis Gaskins, editor and president of IPO Desktop.
Connecture, which helps run public and private online health insurance markets, may suffer from comparisons to Castlight Health (CSLT), another online health data player. Castlight’s shares have dropped 70% since the close of its first day of trading back in March.
Momo, a Chinese mobile messaging and social networking company, also may get a cooler reaction thanks to the weak performance of similar companies. Among Chinese Internet companies, shares of Sina (SINA) have dropped 57% this year, Sohu.com (SOHU) 37% and Renren (RENN) 14%.
But with that in mind, investors likely won’t bid up the current crop of IPOs to the same heights. And that should be good for long-term investor interests.