There’s nothing like a $28 billion debut to get the blood going in the tech sector.
Shares of Snap Inc. closed at $24.48 in its first day of trading Thursday, 44 percent above the initial public offering price. That gives Snap, maker of the social media app Snapchat, a market capitalization of $28.3 billion, more than twice the value of Twitter Inc.
The demand has investors and market-watchers hopeful that a lull in new issues, particularly for technology companies, may soon be over. Waiting in the wings are several prominent startups that have raised billions of dollars and are carrying multibillion-dollar valuations as private companies, including transportation app developer Uber Technologies Inc. and home-rental service Airbnb Inc.
“I’m sure everyone’s jumping for joy at any of these large, highly valued private companies,’’ said Kathleen S. Smith, a principal at Renaissance Capital, an investment firm that specializes in IPOs.
The pace of public offerings has declined sharply in the past two years, partially because public investors have been reluctant to embrace the high valuations granted to high-growth tech companies in the private markets.
Just 105 companies held an IPO in 2016, down from 170 in 2015 and the fewest nationwide since 2009, according to Renaissance Capital. Companies that went public in 2016 raised about $19 billion, the smallest total since 2003.
Snap is the year’s most highly anticipated IPO, and a poor first-day showing could have kept the gate closed to more offerings. When Facebook went public in 2012, its shares closed nearly flat and dove below the offering price in subsequent weeks, effectively stifling the market for new stock offerings, Smith said.
“The public market has been very price sensitive, and it looks to us that the investors in Snap aren’t too price sensitive,’’ she said. “Maybe we’ve reached another point of no return, of just running after stocks regardless of valuation.’’
Promising private companies can still raise investment cash in the face of a cold IPO market. Private equity firms started 2017 with an estimated $500 billion on hand to invest in software companies alone, according to research by Boston investment bank Bulger Partners.
But IPOs are vital for venture capitalists to cash in on their investments in startups and pass the profits back to the pension funds and other institutions that invest in their funds.
The Snap IPO is particularly welcome for Cambridge-based venture firm General Catalyst, which invested in the startup in 2013, shortly after deciding to open a West Coast office. Hemant Taneja, who led the firm’s investment, said Snap’s strong debut was a reflection of “the investor appetite for more tech IPOs.’’
“Hopefully, that is encouraging for these companies that have the opportunity to go public,’’ he said. “There are a lot of companies out there that have the size and scale to go public and operate as public companies today.’’
But one strong IPO, even for a closely watched company, doesn’t mean everything is suddenly rosy in the land of startups. Ben Bajarin, a tech industry analyst at Creative Strategies Inc., said there is significant worry among Silicon Valley entrepreneurs that growth expectations may be too high for tech companies.
He pointed to the example of Twitter Inc., which has seen its share price plummet amid stagnating user growth.
“I think we’re going to need to see both institutional and midsize investors who pull a lot of weight to have a more realistic expectation about tech IPOs, and not think everything is the next Facebook,’’ he said.
As for Snap, Bajarin said, “we don’t know if their upside potential is something like Facebook, or if it’s closer to Twitter.’’
Curt Woodward can be reached at curt.woodward@globe.com. Follow him on Twitter @curtwoodward.
