Newly Public Software Companies Take Their Lumps
Every entrepreneur dreams of the day his baby finally gets a ticker symbol.
But it's been nothing short of a nightmare for investors holding shares of VMware, the virtualization software juggernaut, and BladeLogic, a high-flying developer or datacenter automation software.
VMware, which enjoyed a fantastic initial public offering in August, took its drubbing first, losing 26 percent of its value Tuesday after confessing that its 2008 sales will only grow at about 50 percent, down from the 88 percent clip it recorded last year.
Lexington, Mass-based BladeLogic, which debuted in July, will take its lumps Thursday after warning analysts that investments made to beef up its sales organization in the second half of 2008 will result in a larger-than-expected loss for the year.
In after-hours trading Wednesday, its shares fell more than $3 a share, or 18 percent, to around $18 a share.
I suppose there are (at least) two ways to look at the harsh price these customers and shareholders are taking for, basically, being successful and rapidly growing companies:
On the bright side, it shows that Wall Street isn't just giving these newly public companies a free pass as they did for four or five years before the Internet bubble went bust. There's more accountability and if you fail, or are perceived to have failed, the comeuppance is immediate.
However, the drastic decline in both companies stocks might be more indicative of the broader economic unease gripping everyone from Wall Street to Main Street. Rather than ride out the predictable highs and lows inherent in any tech company's development, investors are taking their profits and running. The question is where are they putting it? Certainly not real estate.
For VMware, scale is part of the story. Public for just two quarters, it recorded sales of more than $1.3 billion last year and now expects to rake in roughly $2 billion this year. Two billion is still a pretty big number where I'm from but it's all relative, I suppose.
BladeLogic's pullback might be more understandable. We're talking about a company that's only forecasting 2008 sales of between $86 million and $90 million. While it would seem to make all the sense in the world to spend more money to grow sales now, but for now investors don't think the price is right.