Glu Mobile debuts as IPO boom sticks

Glu Mobile, a venture-backed publisher of games for mobile devices, raised $84 million in its IPO last week, marking the latest in a string of successful public market debuts by money-losing tech companies.

Shares of San Mateo, Calif.-based Glu Mobile rose 7% in its first day of trading, closing at $12.29 a share. The IPO was priced at $11.50 a share, near the top of the company’s proposed $10 to $12 a share range.

The Glu Mobile IPO is one of seven venture-backed technology companies that have launched IPOs on Nasdaq in 2007. Another 11 tech companies have registered to go public this year, but have not yet started trading.

About half of the newly issued companies—such as Glu Mobile; Clearwire, a developer of wireless broadband networks; Salary.com, a provider of compensation data and software; and SourceFire, a network security company—boast growing sales. But they have yet to report a profit.

Similarly, about half of the VC-backed tech companies that are on the IPO launching pad are operating in the black, such as Starent Networks and ShoreTel Inc. Some, such as Aruba Networks and Infinera, are unprofitable.

Nevertheless, all of the venture-backed tech companies are benefiting from a resurgence of public market investor demand for growth stories, says Ron Pillar, head of East Coast technology investment banking at JPMorgan, which is one of the underwriters for ShoreTel, a Sunnyvale, Calif.-based networking equipment maker that is in registration for a $85 million IPO.

“The IPO has become a more frequent exit opportunity for venture-backed tech companies than in the last five years.” Pillar says.

The recent resurgence in VC-backed tech IPOs seems to have started in December when Isilon Systems, a developer of storage systems for digital media, raised $109 million in its IPO. Isilon, which raised more than $70 million in venture funding, is typical of the sort of money-losing growth company now able to do well on the public market. The Seattle-based company posted a loss of $25 million in 2006, but saw its sales nearly triple to $62 million over the previous year, as large companies implemented its clustered storage systems for ever-expanding stocks of digital content.

Likewise, Glu Mobile has shown growth. The company’s market debut comes amid sharply rising demand for its mobile games, which are made available through partnerships that the company has established with more than 150 wireless carriers nationwide and overseas. Glu Mobile reported revenue of $30 million in 2006, up from $13 million in 2005. Glu Mobile remains unprofitable, however, reporting a loss of $18 million last year and a $12 million loss the year before.

But investors’ willingness to buy IPO shares in unprofitable companies needn’t be interpreted as a precursor to another bubble, Pillar says, as earnings predictability remains a requisite for going public.

“Even if you’re not profitable today, you have to see the path to profitability within a couple of quarters,” he says. “It’s got to be very clear and visible.”