News Column

Palo Alto Networks, Kayak Price IPOs as 'Facebook Freeze' Begins to Thaw

July 9, 2012

Jeremy C. Owens

A lull in stock market debuts for technology companies following Facebook's record-breaking initial public offering has faded, as two known tech entities made filings Monday for IPOs expected to occur this month.

Palo Alto Networks, a Silicon Valley network-security startup, and Kayak Software, a Connecticut-based company that runs a popular consumer travel website by the same name, filed prospective pricing for shares in their respective IPOs Monday, one of the final steps on the road to a public debut.

The IPO market has been stagnant for more than a month, as Facebook's bungled Wall Street debut and unstable price -- along with concerns about the macroeconomic situation and general stock instability -- have kept startups on the sideline.

Facebook debuted on May 18, and the inability of Nasdaq to handle the volume of trades, along with whispers of falling revenue projections, led to the stock falling hard in its first two weeks of public availability.

The resulting fallout was seen in June, when only four companies went public, the lowest total for any month since the deepest point of the Great Recession, in 2008, according to financial analysis firm PrivCo. Before that, an average of more than 13 companies were moving to the U.S. market every month in 2012, which was still below the pace set last year.

However, companies that target big businesses as customers, like Palo Alto Networks, have proved strong this year -- Silicon Valley enterprise software companies Splunk, Jive Software, Proofpoint and Infoblox are among those that have gone to market in the past year and have share prices higher than their IPO prices.

Palo Alto Networks, which is actually based in Santa Clara, makes computer firewall and security software, and last year named former VeriSign CEO Mark McLaughlin to its top job. It is headed for its first year of profitability, showing a net gain of $5.3 million in the first nine months of its fiscal 2012, which ends July 31. In fiscal 2011, the company lost $6.5 million, its best performance up to that point.

Revenues have been building quickly for the company, however, as they have risen from $13.4 million to $48.8 million to $118.6 million in the past three fiscal years, and the company raked in just shy of $180 million in the first nine months of this fiscal year.

The only substantial tech IPO since Facebook was a similar company -- San Diego-based ServiceNow, which provides cloud-based IT software services -- and the company's stock priced above its initial range and still increased 37 percent in its debut June 28.

"ServiceNow shows that the appetite for fast growing tech companies in their growth cycle will be massive. I expect there to be good demand for Palo Alto," Morningstar analyst Jim Krapfel told Reuters.

The company will seek a price of $34 to $37 a share in its IPO, according to Monday's filing, while selling 6.2 million shares, with 75.8 percent of the proceeds going to the company and the rest to early investors. The offering could bring in as much as $229.4 million.

Kayak is a different kind of company, focused on Web consumers that can be a fickle lot, but competitors Priceline and Expedia have been two of the most successful stocks in the Standard & Poor's 500 index since the start of 2009. Cofounders of rivals Expedia, Travelocity and Orbitz joined together to launch the company in 2005, and the company has increased revenues and profits the last three years and a row, all of which showed a net gain.

Kayak plans to price its IPO stock from $22 to $25 a share while offering 3.5 million shares, all from the company, for a possible total take of up to $87.5 million, according to its filing with the Securities and Exchange Commission.

Palo Alto Networks and Kayak are set to announce their final pricing on July 19, Bloomberg News reported, after their respective roadshows.

Source: (c)2012 San Jose Mercury News (San Jose, Calif.)

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