Look behind the websites of retailers such as Barneys New York, Anne Klein or Frederick’s of Hollywood and you’ll find the same thing: Demandware (DWRE) e-commerce software.
Demandware, which is used to working behind the scenes, on Thursday had it’s day in the spotlight, as its shares jumped 48% in its initial public offering.
The company’s IPO priced at $16 a share late Wednesday, raising $88 million and exceeding the company’s expected range of $12.50 to $14.50. The stock climbed as high as 26, up 63%, before closing the day at 23.60, up 48%.
Demandware, which its users get via the Internet, or “cloud,” is the latest in a months-long run of tech IPOs that popped on their first day, all leading up to the huge IPO for social network leader Facebook.
The IPO market, especially for cloud computing companies and other Internets, continues to be hot, says Francis Gaskins, who tracks offerings at IPO Desktop.
“Part of it is because the Dow is up,” Gaskins said. “When that average is relatively high, it’s like heating up water to a boil.”
In January, cloud computing company Guidewire (GWRE) jumped 32% in its debut. This week, it reported 13% year-over-year earnings growth for its latest quarter.
But Demandware’s future is unclear, analysts say. It’s had only two profitable quarters, the fourth quarters of 2010 and 2011. The company’s business is seasonal because it’s tightly knit with retailers that make most of their money in Q4.
In this past holiday quarter, nearly 90% of Demandware’s revenue came from big retailer subscribers.
“That’s the question, whether they can stay profitable,” Gaskins said. “A lot depends on how they do in the March quarter.”
In Q1 2011, Demandware’s sales rose 60% year-over-year but fell 8.3% from Q4 2010, Demandware reported in its IPO filings.
For a company that works behind the scenes, a high-profile IPO might help drum up business, says David Menlow, president of IPOFinancial.com.
“Coming public with a successful IPO certainly can’t hurt” when Demandware pitches its products to prospective new customers, Menlow said.
Menlow said the pre-IPO demand for Demandware shares had been “very strong.”
“There are expectations that the company will continue to grow, continue to firm up its financials,” said Menlow, who rates Demandware a buy.
Based in Burlington, Mass., Demandware was founded in 2004. It now has 215 employees, up from 150 at the end of 2010 and 104 at the end of 2009.
As of Jan. 1, the company says it had 101 clients and serviced 361 retail websites. At the end of 2010, it had 69 clients and serviced 215 websites.
Client companies, which it also describes as subscribers, typically sign up for three-year subscription contracts, but customers ink contracts as short as one year or as long as seven years, the company says.
Subscriptions accounted for 84% of Demandware’s $56.5 million in sales in 2011, with the rest coming from one-time jobs. The year prior, subscriptions accounted for 78% of its $36.7 million total sales.
Demandware sold 5.5 million shares, all by the company and not existing shareholders. Underwriters, including Goldman Sachs (GS) and Deutshe Bank, can pick up an additional 825,000 shares in the next 30 days.
Executives hold 45% of shares, Demandware said in IPO filings with the Securities and Exchange Commission.
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