Markets & Finance

Athenahealth Roars Ahead


Shares of the on-demand software maker surged 97% on the first day of trading, indicating strong demand for new issues

The market turmoil may have put the initial public offering market on pause this summer, but a highly successful debut Thursday demonstrates that the market may be in for a busy fall and winter.

On Sept. 20, Athenahealth (ATHN) shares surged 97.2% to $35.50 on the first day of trading, after pricing its IPO at $18.

The Watertown, Mass.-based company's 573 employees sell Internet-based software to medical offices. Its software and services help doctors manage records and billing. The firm was founded in 1997 by Todd Park, 34, and Jonathan Bush, 38, a cousin of President Bush.

Athenahealth reported $75.8 million in revenue last year, and has about 10,500 medical providers as customers. The company has not yet turned a profit, but Scott Sweet, managing partner of IPO Boutique, expects Athenahealth to break even or make a profit within the next two quarters.

"Their top line growth is outstanding," Sweet says. Their potential market is huge, and many regulators are pushing more doctors offices to adopt software like the kind offered by Athenahealth. "They've just scratched the surface on an area that the government is really pushing," Sweet says.

This year's IPO market may be on pace to be the hottest since the wild days of tech IPOs in 2000. Through August, there were 183 IPOs in the U.S., valued at $42.44 billion, according to Dealogic. That's up from 140 deals at this time last year. There were 431 IPO offerings in 2000, a number that dropped quickly from 2001 to 2003 as the tech bubble burst.

Wall Street seems to like software firms lately. Until Athenahealth, the most successful IPO of the year was VMWare (VMW). The maker of virtualization software premiered on the stock market on Aug. 15. Priced at $29 per share, VMWare share surged 76% on its first day. The stock is now trading at $76.65, despite taking a hit from its most recent earnings report this week.

Many other companies delayed or cancelled IPOs when the stock market started to deteriorate in late July and August. But Sweet says IPOs are expected to come back strongly in October, with offerings coming at the quickest pace of the year. "The pipeline is absolutely full," Sweet says.

Steverman is a reporter for BusinessWeek's Investing channel.

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