Demandware to test cloud IPO appetite

Grazed from Reuters.  Author: Olivia Oran.

Demandware Inc, the fifth cloud computing-based software company to join the IPO wave since December, is expected to see strong pricing and trading during its offering next week.

The Burlington, Massachusetts, firm, which makes software businesses use to maintain their e-commerce sites, plans to raise an estimated $74 million during its IPO under the new ticker "DWRE" on the New York Stock Exchange. It plans to offer 5.5 million shares in a range of $12.50 to $14.50.

Demandware follows a string of successful public offerings from other cloud-based technology companies; all priced within or above their expected range, and then saw their shares soar…

"Timing is everything, and if you’re a cloud operator the timing is perfect," said independent IPO analyst Tom Taulli. "We’ve had a lot of hunger for cloud deals as it has become a huge trend for businesses."

Cloud computing allows companies to access information on the Internet from remote servers rather than from their own computers in-house, which proponents claim helps cut costs.

As demand from businesses for this type of technology has climbed, so has interest from investors hoping to tap a global market expected by information technology research company Gartner Inc to reach $148.8 billion by 2014.

Guidewire Software Inc, a San Mateo, California-based cloud computing company geared toward the property and casualty insurance industry, saw its January IPO price at $13, above its expected range of $10 to $12 a share. Shares of Guidewire closed Thursday at $22.08, up 70 percent from the company’s offer price.

Austin, Texas-based Bazaarvoice Inc, which makes software for businesses to communicate with customers, also priced above its expected range in February. Shares of Bazaarvoice closed Thursday at $15.43, up 29 percent from the company’s IPO price.

Shares of video platform provider Brightcove Inc are trading up 42 percent from the company’s February IPO.

Jive Software Inc, which makes social networking software for businesses, has seen shares gain 96 percent after its December IPO.

Cloud-based software IPOs have performed unusually strongly in a weak market in which 45 percent of all deals last month priced below range, according to Connecticut-based research firm Renaissance Capital.

A string of acquisitions by giant tech companies like International Business Machines Corp, Oracle Corp and SAP AG may have also helped to buoy interest in cloud-based companies, said Cindy Padnos, the founder of venture firm Illuminate Ventures, who concentrates on the cloud computing industry.

"When independent investors become aware that these companies’ products are strategic to large corporations who have significant cash available, it certainly makes these companies even more interesting," she said.

Investors also are drawn to the subscription-based models of these businesses, she said, which create steady and predictable earnings.

SECURITY CONCERNS

Still, not everyone is sold on the cloud. A recent survey by non-profit IT security group ISACA found that nearly half of U.S. business professionals believe the risks of cloud computing outweigh the benefits.

Because cloud services could store data in unknown locations, it could be harder for companies to control the flow of sensitive information.

"Your data is going places, and often in countries that you’re unaware of; and if there is a breach in any of those areas, your data may be compromised," said Rob Enderle, a technology analyst at the Enderle Group. "The difficulty is there is no way to really assess the risk if the data is highly mobile."

Demandware’s revenue in 2011 grew 54 percent to $56.6 million, while it posted a loss of $1.4 million.

Demandware is backed by venture firms North Bridge Venture Partners and General Catalyst, which each own a third of the company. Its customers include Barneys New York, Burton and Columbia Sportswear Co.