HomeAway’s Big First Day a Head Scratcher for Some

IPO gives bubble talk a boost

It was up up and away for HomeAway’s IPO Wednesday.

Shares in the vacation rental website started trading at $27, but over the course of the day they soared 49 percent to close at $40.21 a share.

The Austin-based company, which began the day with a valuation of just over $2 billion, ended its first day as a public company with a valuation of more than $3.2 billion.

While the big opening pop likely pleased early investors and bankers, it left some analysts shaking their heads.

“We were certainly not looking for this kind of a reception in the marketplace,” said David Menlow, president of IPOFinancial.com. “In the absence of any kind of rational thinking—certainly investors didn’t display that today—I have to defer to a really lame reason, which could be the Morgan Stanley effect.”

Morgan Stanley, the lead underwriter in the HomeAway deal, also led LinkedIn’s IPO, which jumped more than 100 percent on its first day.

“Maybe we are in that area where it doesn’t matter what a company does if it shows some semblance of a strong business plan, and Morgan Stanley brings it, and it has to do with the Internet, it’s going to work,” Menlow said.

Menlow said he saw Pandora’s more muted debut as a “sobering moment for the marketplace” and a welcome sign that investors were looking at not just the sector but the business plans behind the companies. But he said HomeAway’s surge suggests a return to bandwagon mentality.

But Nitsan Hargil, director of research for GreenCrest Capital, looked at HomeAway’s nearly 50 percent jump more favorably.

“There’s a lot of room for it to give back some of those gains but still be on the record as a successful IPO,” he said. “Altogether, I think it went extremely well. For a name that was not one of the marquee names out there, I think it was successful.”

Still, many expect the upcoming tech IPOs—namely Zynga and Facebook—to set the true benchmarks. 

“I’m looking for Zynga. I’d like to see it in the marketplace because it will truly be the benchmark for the rest of the stocks in its sector,” said Menlow. While the company won’t release its financials until it files its IPO paperwork, many expect it to reveal strong revenues and profit.

“It will be the crown jewel in this sector,” he said. “Until it is unseated by another company.”