New Relic and Hortonworks pop in Wall Street debut, closing out busy IPO week

Two big-name Bay Area software startups made strong debuts Friday on Wall Street, the latest in a run of public offerings that has brought a cash infusion to the region during what has historically been a slow season for IPOs.

Shares of Hortonworks, based in Santa Clara, popped 65 percent Friday, and San Francisco-based New Relic soared 48 percent on its first day of trading. The startups — which make cloud software that allows companies to collect, store and analyze huge swaths of data from their business operations — raised a combined $211 million, a reflection of the momentum the so-called “big data” industry has gained in Silicon Valley. Some of the fastest-growing tech companies — and some of the highest-valued venture-backed startups in the world — fall into this category, such as Palantir, valued at $9.3 billion, and Cloudera, worth $4.1 billion, according to data from Dow Jones.

Despite gyrations on Wall Street amid plummeting oil prices, making this week the second-worst of the year for the Dow Jones industrial average, shares of both New Relic and Hortonworks debuted high and stayed high. New Relic shares opened at $30.16 on the New York Stock Exchange, a jump from the $23 per-share IPO price set Thursday, and climbed steadily in the morning hours of trading before closing at $33.99. The company raised $115 million, and at its closing share price, has a market value of $1.57 billion.

Hortonworks opened on the Nasdaq at $24.02, about $8 above the $16 per-share price it set Thursday, before closing at $26.38, nearly its highest point of the day. The startup — which has made a mad dash to the public market, filing for an IPO only last month — raised $96 million, and was valued at $ 1.09 billion at the close of Wall Street Friday.

“Hortonworks went from zero to IPO in three years, and that’s indicative of how transformative our industry is,” said Roman Stanek, founder and chief executive of GoodData, a software company for data management based in San Francisco. “I do believe that this is a very strong validation of the big-data segment. But I also believe that this is an inflection of how impactful big data is for many companies — and investors see it.”

Stanek points to how the e-commerce and advertising industries have benefitted from using software like his to collect and analyze information about customers and sales, so they can grow and make more money.

“When you compete with Amazon you know what it is to compete with big data,” he said. “Big data will be on the agenda of most CEOs next year and the year after next.”

Some, however, were skeptical of the valuations both companies earned on Wall Street, given that they are far from profitable.

“Both New Relic and Hortonworks are going public with large, growing losses,” said Brian Hamilton, chairman of financial information company Sageworks. “Judging by the performance of these … stocks on their opening day, it’s clear that the frothiness of the market outweighs any logic or reason.”

Founded in 2007, New Relic opened an office in Ireland in February, a sign of its growth abroad as well as domestically. But as it grows, the company is also spending more, and its losses almost doubled from March 2013 to March of this year, to $40.2 million. Revenue for the company more than doubled during that time period, from $29.7 million to $63.2 million.

Like New Relic, Hortonworks’ losses almost doubled year-to-year, reaching $86.7 million for the nine-month period ending in September. The company had revenue of $33.4 million, more than double its earnings for the same period the year before.

Friday’s initial offerings round out a trio of big-name IPOs from the valley this week, following Lending Club’s deal on Thursday, which raised $865.5 million to become the largest IPO from California this year, and valued the company above all but 14 U.S. banks.

December, typically a quiet month for IPOs, has been extraordinarily busy. So far, there have been 10 IPOs, all but one of them this week, raising a combined $2.2 billion, according to market intelligence firm Ipreo. Another four IPOs are expected before the end of the year, raising $922.6 million and putting this month on pace to be the busiest for public offerings since December 2010.

Fewer deals typically happen in December because the holidays cut short the time companies have to court investors on their roadshow before an IPO, and investors are often focused on wrapping up their deals for the year, not making new ones. But Manuel Henriquez, founder and CEO of Hercules Technology Growth Capital, said companies want to take advantage of the market’s seemingly insatiable appetite for tech stocks, and go into the New Year with a pile of cash.

“They get to have a significant IPO to stuff the coffers with cash to grow throughout 2015,” he said.

Contact Heather Somerville at 510-208-6413. Follow her at Twitter.com/heathersomervil.