Language-learning company Rosetta Stone's (NYSE: RST) April IPO was seen as a sign of a thawing in the IPO market when it closed its first day of trading at $25.12, up from an IPO price of $18. The stock is now hovering at around $24.20 per share, making it too early to say how this IPO will work out for investors.
Today the Wall Street Journal reports (subscription required) that "U.S. IPO activity last month gave indications that the window for new stocks has nudged a little wider. There wasn't a flood of initial public offerings in May, only three, as was the case in April, but the types of companies coming public shifted to include two venture-capital-backed offerings."
But so far in 2009, only four companies have filed with the SEC to go public, down from 50 at this point last year. Investors are still willing to invest in some IPOs but they're looking for companies with actual business models and, get this, revenues and perhaps even profits. Some experts believe that the contraction in the IPO market is a more permanent, secular development, dismisising the past 15 years of brisk new issue activity as a historical anomaly.
Also putting a cap on the IPO pipeline could be the tanking volume of venture capital investment. Investments fell 61% to their lowest level in 12 years in the first quarter of 2009. With so little money being plowed into developing companies, where will the next wave of IPOs come from, even if there is an investor appetite for them?
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