With this month's soaring stock debuts of three Silicon Valley companies -- two of them in long-neglected tech sectors -- Wall Street appears to have officially moved past the tech stock uneasiness that emerged after Facebook's flop last spring.
A new report by Ernst & Young shows that far more companies went public than expected in the first quarter of this year, and the trend seems sure to accelerate with the recent IPO successes of Silver Spring Networks, Model N and -- on Friday -- Marin Software.
Still, there are reasons to temper the market's "March madness."
Initial public offerings, which power Silicon Valley's tech economy, tend to come in waves, and some analysts say there's always the risk that a rush to market will admit unqualified "dogs" that could spoil things with IPO flops.
"I think there's still caution out there," said Derek Dowsett, who heads the Silicon Valley practice of accounting and consulting firm Moss Adams.
Even the three local companies whose IPOs have taken off this month carried warning signs.
All three operate in the "sweet spot" the stock market seems to be looking for: selling software to big companies via the remote computer network known as "the cloud." On average, the IPOs gained 25 percent on their first day of trading.
But none of the three are profitable, even though these days that's hardly a badge of shame on Wall Street, where buyers tend to be more enamored with revenue growth than profits.
Model N's stock finished Friday's session more than $1 down from its first-day close -- even as both the Nasdaq Composite and the Dow Jones industrial average posted double-digit percentage gains. Silver Spring Networks' Friday close was off nearly $2 compared with its first day of trading.
And the third member of the Troika, Marin Software, saw its stock jump out of the gate Friday, then tick downward as the closing bell approached. While its finish at $16.26 was 16 percent higher than the IPO price, it was also its lowest price of the trading day.
Many observers were surprised by the market's warm reception for Silver Spring Networks, in particular. The company sells "smart grid" hardware and software to utilities including PG&E, but its revenues have been shrinking, and it operates in a cleantech industry that investors have shunned.
Sam Hamadeh, CEO of New York financial analysis firm PrivCo, had loudly warned that the IPO "had more red flags than a Communist party parade." He said the stock, which closed Friday at $20.10 -- still well above its offering price -- is worth $4.50 per share.
The IPO calendar is quiet for the coming week, with only one company -- Pinnacle Foods of Parsippany, N.J. -- on the docket, according to tracking firm Renaissance Capital.
But don't expect the hiatus to last long.
The Ernst & Young report notes than 25 new companies have filed to go public so far this year. The actual number is probably much higher, because new federal rules allow many companies to keep their IPO plans private until two weeks before the "roadshow" to prospective investors.
Ernst & Young called those filings a sign "that companies are lining up while the IPO window is still open." Confidence is being driven by the Dow's strong performance in recent months, the report said, and by the widespread belief that worries about the so-called "fiscal cliff" were overblown, at least for now.
A quarter of the companies that Ernst & Young identified as being in queue to go public are in tech or life sciences. And last week's strong showing by Model N -- which makes revenue-management software originally targeted at biotech and drug companies -- was hailed as promising news for a life-sciences sector that has been out of favor with investors.
"It says that great software companies led by proven entrepreneurs with predictable growth are very welcome in the public markets," said Paul Madera of Palo Alto's Meritech Capital Partners, an early investor in Model N.
Other Bay Area companies in the IPO pipeline include San Mateo-based Marketo, Campbell's iWatt, Gigamon of Milpitas and Emeryville-based Exponential Interactive.
Still, Jon Callaghan, a venture capitalist with Palo Alto's True Ventures, said while he agrees the IPO window is open, it's not clear how broad the market's appetite is.
"We still need a few more of these to get past their initial pop and start hitting their numbers," he said. "Confidence builds with that, not with one or two hot offerings."
Contact Peter Delevett at 408-271-3638. Follow him at Twitter.com/mercwiretap.