Taking a company public requires an orchestrated process involving a financial brokerage firm’s underwriting department, copious financial and other disclosures and the U.S. Securities and Exchange Commission (SEC). It also involves a guessing game of sorts in determining the proper valuation of a company, which sometimes is in line with reality and investor expectations and sometimes out of context with the company’s actual revenue forecast and future earnings potential.

The Valuation Process for Tech Companies Going Public

Here are three examples of how tech companies have been looked at by analysts just prior to their IPO release and their results since. These three highly recognizable tech brands, Google, Inc., Facebook Inc. and Twitter, had different experiences starting out with Wall Street and are testaments to the unpredictability of the markets, as well as the inexact science of properly valuing tech companies.

Google was the first of the three to enter the public markets with an August 19, 2004 IPO of $85 per share. The offering, the first of its kind for a tech stock since the high times of the 1990s tech bubble, raised $1.67 billion for the company. The company had initially sought a range of $108 to $135 per share (which would have raised approximately another $1 billion more) before settling on $85.

Valuing Google was impacted by a poor showing for comparable techs that summer, coupled with investor concerns that the market value of Google would be nearly as high as a more mature company like YAHOO! ($24 billion for Google versus $39 billion for YAHOO!). Google has exceeded its expectation in the market, outpacing the market by more than 900% as of Q3 2013, leaving many to believe that the valuation for Google may have been low-balled

The Valuation of Twitter versus Facebook

The tale of Twitter and Facebook have proven the most curious for many analysts following tech company IPOs post-Google. Facebook, which launched its IPO May 18, 2012 at $38 per share, placed the company value at $104 billion, raising $18.4 billion for the company (in the second most valuable IPO since VISA Inc. in 2008). This seemed to foretell great future success for the company, but the valuation of Facebook—a company that was making money, as opposed to other tech companies—may have been a bit high. Facebook struggled for more than a year (July 31, 2013) when the stock began trading again at its IPO price, though is up 89% currently with a market capitalization of $183 billion.

Twitter, on the other hand opened at $26 per share in its November 7, 2013 offering to raise $1.8 billion at a value of $14.2 billion. The stock finished the day at $44.90 per share, and the company currently trades at twice its value and share price. The company reported in its S-1 filing with SEC a loss in 2012 of nearly $80 million on $317 million in sales and through the first three quarters of 2013 prior to the IPO, revenues of $422 million and a loss YTD of $134 million. Valuing a company that was losing money prior to its IPO at $14.2 billion seems more art than science, but the fortunes of tech companies since 2000 suggest that forecasts made on the future of these companies are more in line with their reality today than they were 15 years ago at the height of the tech boom.