Today: Pleasanton cloud software company Workday explodes on the open market after its IPO, signaling a return for Wall Street's taste for tech startups. Also: Markets fall after banks' earnings reports, and Google (GOOG) faces severe antitrust scrutiny from feds.
Workday's big first-day pop could signal a tech IPO revival
Workday exercised the biggest tech-stock debut Friday since Facebook's bungled first day of trading in May, and investors sent the price of shares soaring high enough to make analysts believe that the market for initial public offerings has finally fully healed.
The Pleasanton human-resources cloud software company was a hot commodity, continuously increasing the projected price of IPO shares until setting a final price of $28 Thursday evening. The elevated price was not enough to scare away investors, as IPO Boutique partner Daniel Sweet said that he heard the offering was oversubscribed -- demand exceeded supply -- by a multiple of 8 to 10.
When shares reached the open market, that demand exploded -- the stock opened at $48.05 and moved as high as $51.37, 83.5 percent higher than the IPO price, in regular trading before closing at $48.69, an increase of 73.9 percent. The rise was so dramatic that some pundits proclaimed that Workday and its underwriters had been too conservative in its pricing, leaving money on the table.
The strong debut from Workday follows a run of positive action in the IPO market: Silicon Valley tech companies Palo Alto Networks, Trulia and Qualys all executed successful IPOs in the third quarter to break the so-called Facebook freeze, and four companies debuted Thursday on Wall Street with increases of more than 20 percent. Sam Hamadeh of PrivCo reported that the week ended with the most IPOs priced since March 2012.
Hamadeh believes that the run of strong performances, despite dropped IPOs from the likes of Dave & Busters and the parent company of Carl's Jr., means the market for fresh public companies has fully returned.
"Workday's very strong performance -- and coming on the heels of strong performance from other recent IPOs (including B2B players such as Palo Alto Networks and Splunk -- and select consumer plays such as Trulia) have combined to now forcefully reopen the IPO window," he said Friday.
However, Workday's stunning debut owes a lot to the company itself and the sector in which it resides, factors that could have made it a special case that doesn't signify a total return to health.
The company was founded by two veterans of PeopleSoft, the Pleasanton human-resources software company that was swallowed up by Oracle (ORCL) in a hostile takeover in 2005. PeopleSoft cofounder Dave Duffield and executive Aneel Bhusri rose from the ashes to found and run Workday as co-CEOs, giving investors confidence because of their success with the former company.
The company "is clearly receiving a well deserved premium valuation as the market bets that lightning can strike twice for Dave Duffield," Hamadeh said.
With the new company, Duffield and Bhusri made a change from PeopleSoft, however: They chose cloud-based software -- also known as software as a service, or SaaS -- which provides remote storage rather than making customers buy expensive licenses and endure lengthy and complex installations. The delivery platform for enterprise software has made companies that can execute it well popular to investors even before Facebook's debut, when Infoblox, Proofpoint and Splunk made splashes, and have pushed software giants like Oracle and SAP into big acquisitions to push into the sector.
The cloud setup allows companies to get their revenues through subscriptions, which gives investors confidence that their revenues will be more predictable.
"A customer will sign a three-year deal with Workday and they're going to get a monthly or annual payment for the next several years. The attractive thing to an IPO buyer is a recurring revenue stream," John Jarve, a managing director at Menlo Ventures, told Reuters.
Unlike bigger rivals Oracle and Salesforce, however, Workday's smaller structure and focus on just human resources gives it advantages.
"The structure of this particular company would make them one of the worst nightmares for their competitors. ... They can frequently upgrade their software multiple times a year, keeping them ultracompetitive to these very bulky and very expensive systems," Sweet said.
Those factors lead investors to believe that Workday's exploding revenues will continue to grow at a rapid pace.
"There's millions of small companies who need a systematic way to manage human resources. As long as Oracle and others don't have the specific modules that a smaller business might need, there are going to be niches for players like Workday," Charlie Smith, the chief investment officer at Fort Pitt Capital Group, told Reuters.
No matter if the IPO success was due to a recovering market for tech startups or was specific to Workday itself, experts said Wall Street is likely to see a lot more companies attempting to go public to take advantage of the excitement.
"There are a number of companies that will ride the business-to-business enterprise wave. This will hopefully open up the market for some very good companies," Ira Cohen, co-founder of software-investment company Updata Partners, told Reuters.
"Strong private companies seeking IPOs should pursue and price them without further delay, as we know from recent history that the IPO window can shut down just as fast as it opened," Hamadeh cautioned.
Wall Street has worst week since June, AMD plummets amid layoff rumors
Wall Street did not have a good day outside of Workday's success, however, as third-quarter earnings reports continued to disappoint investors.
Friday's big report was San Francisco-based Wells Fargo, which reported record profits but revenues that did not live up to analysts' expectations. All bank stocks took a hit as the three major indexes finished off their worst week since June.
In Silicon Valley, Advanced Micro Devices plunged lower than $3 a share after Thursday's post-bell warning that revenues would continue to drag. After the early warning on depressed revenues -- the second consecutive quarter the Sunnyvale chipmaker has been forced to disclose weakness -- shares dropped to a 52-week low with a decrease of 14.4 percent. After the bell, reports began to emerge that AMD would undergo a severe round of layoffs as a result of their recent problems.
Google, recently trading at all-time highs, dropped 0.9 percent after Reuters reported that the Federal Trade Commission is considering filing an antitrust suit against the Mountain View search giant, and Microsoft said it would add the company to an Android patent lawsuit it has filed in Germany.
Apple gains after reports of iPad Mini launch on Oct. 23
Apple gained 0.3 percent on Friday, but not because concerns about the iPhone 5 have been put to rest. Instead, investors are now looking forward to the next Apple device launch. Reports Friday said the rumored iPad Mini, which previous reports said would be announced at an Oct. 17 event, will instead be introduced on Oct. 23.
Reuters, Bloomberg and Wall Street Journal tech blog AllThingsD all reported Friday that the event would take place that day, though Apple has not sent out a formal invitation nor responded to the reports.
Silicon Valley tech stocks
The tech-heavy Nasdaq composite index: Down 5.30, or 0.17 percent, to 3,044.11
The blue chip Dow Jones industrial average: Up 2.46, or 0.02 percent, to 13,328.85
And the widely watched Standard & Poor's 500 index: Down 4.25, or 0.3 percent, to 1,428.59
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/mercbizbreak.