The thunderous reception Friday for the initial
public offering of Emerge Interactive, which
aims to bring e-commerce to the cattle industry,
provides a prime example of the current mania
for business-to-business (B2B) Internet plays.
Emerge, which sold eight million shares at $15
late Thursday, finished Friday at 47 1/4, valuing
the company at $1.6 billion. The Emerge
Interactive IPO represents the latest chapter in a
corporate chronicle that was outlined last month
in a skeptical article on Internet Capital Group,
the highflying B2B investment company that
holds a 25% stake in Emerge.
Emerge, unsuccessful in other corporate
pursuits, last year bought three cattle-oriented
Websites, including Cyberstockyard.com, for
around $5 million. Then in November, Internet
Capital, the leading B2B incubator with stakes
in some four dozen companies, paid $50 million
for a 30% stake in Emerge, valuing the
company at $166 million. Emerge then filed for
an IPO in December, valuing itself at around
$400 million. Now, the company is worth four
times that much.
Emerge Interactive, of course, is unprofitable
and expects to remain in the red for the
foreseeable future. The company's fans say it
has "first-mover" advantage in the cattle
"space," a large market given that 30 million
animals change hands annually. Emerge wants
to become an eBay-like intermediary for cattle
sales over the Internet.
Yet Mike Miller, an analyst with CattleFax in
Denver, says Emerge faces some challenges
because cattle historically have been auctioned
at barnyard sales. "I can't argue with their idea,
but this is an industry grounded in tradition.
People in this industry are very comfortable
with the way business has been done."
Emerge has had some success; its cattle trading
volume was $17 million in the first nine months
of 1999. But Emerge's gross profit was less than
$200,000, before expenses.
Let's recap the Emerge story: Its $5 million
investment a year ago is now worth more than
300 times that amount. Internet Capital Group,
meanwhile, scored a coup because its $50
million investment turned into $400 million in
just three months. It's no wonder that venture
capitalists and corporations ranging from Intel
to Oracle to General Electric are plowing
money into Internet companies.
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