SecureWorks' lacklustre debut on Friday hardly registered as a victory for the battered technology IPO market, as the cyber unit of Dell raised less than the company had sought in its public offering and saw its stock price dip.
SecureWorks shares opened at US$13.89 on Friday, below the $14 per-share price set Thursday. They rose as high as US$14.58 after trading at a low of US$13.40 on the Nasdaq. The stock was last at US$14.05, up slightly on the day.
In the first US technology IPO this year, ending the longest drought in seven years, many investors and cyber security entrepreneurs hoped SecureWorks would reinvigorate the market and instill confidence in cyber firms, many of which have been battered on the stock market over the last year.
Stock market volatility last year and early this year may have scared off some listings. The majority of tech IPOs that debuted since 2014, meanwhile, are underwater from their IPO price.
Share of cyber firm FireEye, Barracuda Networks, and Rapid7, the most recent high-profile cyber security IPO, are all down by at least half.
"They failed to deliver real good value to the customers they serve," said Sunil James, an investor with Bessemer Venture Partners.
Hope for a popping SecureWorks IPO dimmed late Thursday, when the company priced shares at US$14, below their indicated range of US$15.50-$17.50. It sold 8 million shares, below its target of 9 million.
At its opening share price, SecureWorks was valued at US$1.1 billion, a bit more than half the valuation it was eyeing when it filed for an IPO in December, but still well above what Dell paid for the company in 2011.
"It's a busted IPO," said Tim Ghriskey, who helps manage US$1.5 billion as chief investment officer with Solaris Asset Management.
By this time last year, six technology companies had priced IPOs, raising a total of US$1.6 billion, according to Thomson Reuters data.
Still, Ghriskey said that "this doesn't mean that there won’t be more tech IPOs, or they will all be weak".
Indeed, SecureWorks has little in common with other technology IPO contenders. It is owned by Dell and not backed by venture capitalists; it is based in Atlanta, rather than Silicon Valley; and it was founded nearly two decades ago.
SecureWorks president and CEO Mike Cote said the company had been investing heavily over the last two years, and would begin to see returns from that spending this year.
Demand for SecureWorks shares was hurt by factors unique to the company – growing losses and an "overhang" of unsold shares from its parent Dell, which is not publicly traded.
SecureWorks said in a filing with US regulator that its operating loss nearly doubled to US$72.4 million in fiscal 2015 as revenue climbed 30 percent to US$339.5 million.
Cyber security startups who closely watched SecureWorks' debut said it did not encourage them to brave the public markets anytime soon.
"I don't think it would be seen as any kind of bellwether that the IPO market is coming back," said Robert Thomas, CEO of San Francisco-based security startup CloudPassage. "I don’t think it encourages anybody to hop on the bandwagon and go public."
He said his firm’s IPO is about three years away. But several other cyber security companies have put their IPOs on hold for months already. They include Bit 9 + Carbon Black, Veracode and Zscaler, according to venture capitalists.
Reporting by Jim Finkle in Boston and Sruthi Shankar in Bengaluru; Editing by Savio D'Souza and Nick Zieminski
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