Who hasn’t noticed the good news in software? Software stocks are up 26% this year (compared to 17% for the S&P). And the median public software company EBITDA margin is at a four-year high according to the Software Equity Group.
Equally exciting is the number of recent software IPOs: Rosetta (RST), Open Table (OPEN), SolarWinds (SWI), MediData (MDSO) and LogMeIn (LOGM), with more on deck. Is this the resurgence required to end the IPO crisis?
The string of successes can only be judged by looking at history. How does the current software IPO uptick stand in historical context? The results are shown in the IPO Dashboard above, which I’ll keep current. It shows every U.S. software IPO for the last ten years. (The updated version will appear under the “Tracker” section).
While the 2009 numbers are impressive compared to 2008, when considered in historical context there isn’t much to get excited about. In fact the statistics on IPO dollars raised are dismal. According to JPMorgan, total IPO volume in 2009 (in all industries, not just software) stands at about $3 billion, compared to $27 billion in 2008 and $45 billion in 2007.
Unfortunately, the current software IPO microburst has more to do with the thirst that builds during a long drought than with a fundamental rebound in the sector. As the new generation of private software companies become ever larger, even conservative investors in a dismal economy start to find them attractive.
Software innovation hasn’t stalled. In fact it seems faster than ever. And software company revenue growth also continues to impress. One wonders whether the long drought will produce the bona fide software IPO resurgence this country needs in the next few years. Perhaps the current microburst is a sneak peak at the coming deluge.