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New generation of post-Twitter IPOs brewing

The New York Stock Exchange flew a Twitter

The New York Stock Exchange flew a Twitter banner on Nov. 7, 2013, the day the social media company began trading publicly. Credit: AP / Mark Lennihan

SAN FRANCISCO -  Just as one high-tech breakthrough often paves the way for the next big thing, technology IPOs move in virtuous cycles, too.

Twitter's scintillating stock market debut punctuated a procession of highly anticipated coming-out parties over the past 2½ years, providing a springboard for a new generation of rapidly growing startups to make the leap to Wall Street.

The next wave of potentially hot IPOs includes trendy services such as AirBnB, Square, Spotify, Dropbox, Uber, Snapchat, Pinterest, Box, Scribd, Flipboard and King.com. Most of their services are tailor-made for smartphones and tablets, a crucial characteristic that helped feed the rabid demand for Twitter's stock in its initial public offering two weeks ago.

Despite the short-messaging service's unprofitable history, Twitter is now worth about $29 billion.

"Twitter just made it clear that the IPO window is open and a lot of success can be had," says Ira Rosner, of Greenberg Traurig, a law firm that helps prepare companies for IPOs.

Other startups --and the venture capitalists who provide them with rounds of funding-- will be angling for similar windfalls by filing their own plans to go public over the next two years, Rosner believes. "There is no question that a successful offering encourages other offerings; it creates buzz."

Even before Twitter's IPO, good vibes were rippling through the stock market as the Dow Jones industrial average and Standard & Poor's 500 indexes repeatedly set new highs. The fertile conditions have produced 199 IPOs in the United States this year, according to the research firm Renaissance Capital, putting 2013 on track to be the biggest year for IPOs in a decade.

The companies generating the most interest from venture capitalists include Uber, the provider of on-demand car services that received $258 million so far this year, and Pinterest, which nabbed $425 million. Pinterest's latest round of financing, for $225 million, valued the popular online pinboard service at nearly $4 billion. The San Francisco company just recently began trying to generate revenue, which means it could be several years before it becomes profitable. Snapchat, meanwhile, recently turned down a $3 billion buyout offer from Facebook, according to a Wall Street Journal report. A Snapchat representative did not return a message for comment.

"The market is signaling that it is very receptive again to these young, high-growth social media Internet companies," says Tim Loughran, finance professor at the University of Notre Dame in Indiana. Twitter's successful IPO even proved that it's irrelevant whether companies are profitable, he says.

A string of IPOs that began with the May 2011 debut of professional network LinkedIn Corp. helped fuel investors' interest. Other online services with large audiences followed LinkedIn into the public stock market, including online review site Yelp Inc., Internet radio station Pandora Media Inc., daily deal maker Groupon Inc., online game maker Zynga Inc. and social networking leader Facebook Inc.

Groupon and Zynga have been duds so far, largely because they didn't adjust quickly enough to shifting conditions in their respective markets, but all the others are trading above their IPO prices. LinkedIn and Yelp have more than quadrupled from their IPO prices, making the stocks star performers among the group.

Facebook's May 2012 IPO spooked many investors because of trading glitches and questions about the company's ability to grow mobile revenue, but the stock is now trading well above its $38 IPO price.

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