SecureWorks IPO Shows Tech Less Than Secure?

Yes, it was a long time coming, but the latest tech initial public offering to start down the lane may bring more questions than it answers.

Such as: What do investors want from technology IPOs?

As has been widely reported, SecureWorks Corp., which operates in a heretofore sexy industry — cybersecurity — came to market on Friday (April 22), listing its shares publicly. That debut put an end to a several-month spell where no tech outfits dared brave the waves of negative investor sentiment.

The action was nowhere near the tech euphoria that marked previous tech firm debuts on the Nasdaq and elsewhere. In fact, with the first day of trading under its belt, SecureWorks, which is the cybersecurity arm of Dell, managed to eke out $112 million in proceeds. At $14 and with 8 million shares changing hands through the session, the stock closed its first full day completely flat. The debut pricing at that level was significantly lower than the range SecureWorks had previously anticipated at $15.50 to $17.50. In addition, the firm had been looking to sell 9 million shares.

Why the muted activity on Friday? As The Wall Street Journal reported, the hope among tech firms was that a robust SecureWorks entrance to the public markets would indicate that some interest would be firming up in IPOs.

In a framework of near-term activity, it seems that would-be investors are concerned where profits are headed (for instance, in firms like SecureWorks) and are paying attention to valuations (as many of them are so expensive).

One holdup in gathering investor trust with these new issues lies in the fact that there have been a few busted IPOs littering the investment landscape. The busted IPO signals some frustration with firms that may have heady growth on the top line but that are unable to translate that into black ink on the bottom line. Like so many tech brethren, costs have kept pace with the top line. In the case of SecureWorks, net losses doubled, outpacing 30 percent top line growth.

Dell is still the majority owner of the firm, but proceeds are going to SecureWorks as it seeks to grow its business. The $112 million raised on Friday was a far cry from estimates that valued SecureWorks at about $2 billion (Friday’s number was about half that market cap).

One signal comes from FireEye, where management said slower growth may be in the offing for cybersecurity firms. That’s worrisome in an environment where, even in strong growth mode, profits may prove elusive.

In a larger setting, SecureWorks’ drab day one trading means that the IPO exit strategy — once a no-brainer for tech executives and the venture capitalists backing them — now needs careful consideration and perhaps nerves of steel.