5 tech IPOs that party like it's 1999

By Michael Brush

Comparing anything in the stock market to 1999 is a bit of a backhanded compliment. Sure, stocks went through the roof that year. They also happened to go through the floor not long after.

Initial public offerings were the poster children for that market, both up (gains averaged about 115% in 1999) and down (average losses of 40% in 2000 and 50% in 2001 for many of those same stocks).

So when I say that the market for technology IPOs is starting to look a bit like 1999's, don't get me wrong. The outcome this time should be much better.

Sure, the current crop has many of the hallmarks of the devastating bubble era, including some sky-high stock valuations. Investors are once again setting aside some of their skepticism and falling in love with catchphrases like "wide-area optimization" or "session border controllers."

But this time around, investors in hot IPOs can count on something substantial beneath the hype. In the late 1990s, companies didn't even need much in the way of revenue to launch an IPO. Now profits are the rule, not the exception. So, yes, there's a lot more substance to these new issues. Here's a closer look at five newly public companies that are worth investors' dollars now.

Riverbed Technology

During the tech bubble, some of the biggest winners -- and losers -- were Internet infrastructure plays, including networkers Cisco Systems (CSCO, news, msgs) and Juniper Networks (JNPR, news, msgs).

Riverbed Technology (RVBD, news, msgs), which went public in September, sells appliances that speed up communications inside corporate networks as much as 100-fold. That's worth paying for -- which explains why revenue leapt 359% to $56.4 million in the first nine months of this year.

"Big companies try it, and then they buy a lot more because they like it," says Tom Taulli of InvestorOffering.com. The company gets a lot of repeat business, which explains the unusual hypergrowth rate, says Taulli. "Riverbed is one of these companies that doesn't come along very often."

Deutsche Bank Securities analyst Cobb Sadler thinks Riverbed's full-year 2006 revenue will increase at the white-hot pace of 272% to $85.4 million. He's looking for 2007 sales gains of 79% to $152 million, and 40% annual growth on average in the following years.

Riverbed gear speeds up traffic in the "wide-area networks" used to connect offices and databases spread out over huge distances. It provides -- brace yourself -- "wide-area optimization." Communications inside these networks often bog down because common software applications were designed for smaller networks. The applications use small payloads. Or they're too "chatty" -- meaning they make too many trips between databases and desktop computers to get jobs done.

Riverbed's products speed things up by repackaging payloads. They also know the basic things that applications need when they set out on a task. So they dig them up in advance on the receiving end to reduce round trips.

Riverbed has competitors like Cisco and Juniper, but its products -- including a line called "Steelhead" -- are the hottest for now. Riverbed gets five times the revenue of the next closest competitor (Juniper) for "wide-area optimization" products, estimates Sadler.

Riverbed shares aren't cheap. They trade at a price-earnings multiple of around 80. But that's only twice Riverbed's expected 40% annual growth rate. Sadler has a price target of $27, and the stock recently traded for $26. So you either buy now for the long term or try to pick up shares on dips. Riverbed co-founders Jerry Kennelly and Steven McCanne had top management positions at Inktomi.

Acme Packet

Another newly public networker, Acme Packet (APKT, news, msgs), wants to make sure your calls home this Thanksgiving go smoothly, if like millions of people you use Voice over Internet Protocol (VoIP) phone service. The company provides "session border controllers," which improve the quality of transmissions that have to jump across borders between Internet networks.

This is important for smooth voice and video transmission, because of the egalitarian nature of the Internet, which typically doesn't give priority to any kinds of traffic. If packets fall out along the way, the system just keeps sending them until a transmission is complete. But that's not good enough for smooth voice and video feeds. So Internet service companies use the session controllers to target phone calls or video as a single session so that data transfer isn't interrupted. Revenue at Acme, which went public last month, doubled to $31 million in 2005. Infonetics Research, a market research firm, predicts that the session-border-controller market will grow to $571 million in 2009 from $86 million last year.

Optium

The list of top brass at Optium (OPTM, news, msgs) reads like a Who's Who of JDS Uniphase (JDSUD, news, msgs) managers from the 1990s. Optium Chief Executive Eitan Gertel was a general manager of the transmission-systems division at Uniphase from 1995 to 2001. General Manager Mark Colyar, Vice President of Sales Anthony Musto and several other Optium managers are also Uniphase alumni.

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