06/21/99-
Updated 04:50 AM ET
Internet IPOs get gravity lesson
Stocks take hard fall after first-trading-day peaks
By James Kim, USA TODAY
Internet companies went public in droves in May, the busiest month ever for such deals, but many already have landed with a thud.
Even after last week's relief rally, 15 of the 25 Internet companies that sold stock publicly in May for the first time are trading below their offer price. Fashionmall.com, offered at $13 a share, closed at 7 11/32 Friday. Juno Online Services, offered at $18, closed at 11 1/16. CAIS Internet, offered at $19, now is at 12 3/16.
What's more, the highest-profile of the May IPOs are considerably below their first-trading-day peaks. EToys, offered at $20, soared to 76 9/16 on its first day of trading. It's now at 39 3/16. TheStreet.com, offered at $19, closed at 60 its first day. It closed at 26 3/4 Friday.
Experts aren't surprised. "Over and over again, it has been shown that IPOs underperform after about six months," says Mark Basham, analyst at Standard & Poor's. The difference this time is the speed of the collapse.
The fast selloff also raises questions about which direction newly issued stocks, which typically rise on their first day of trading, will soon head. Internet search engine Goto.com, which went public at $15 Thursday and traded as high as 28 1/12, already was back down to 22 3/8 at Friday's close.
The IPO selloff coincides with a bear market for even the "blue-chip" Internet stocks, as investors fretted in general about interest rates. America Online is down 36% from its early April peak.
The May IPO stock plunge "is troubling," says Scott Sipprelle, of Midtown Research Group. "If investors lost money, they might be reluctant to buy the next one." Day-traders and other aggressive investors who bought IPO stocks on margin, and helped whip up prices, may be sidelined. But IPO investor Louis Sears, of Portland, Ore., says, "I can't imagine stopping now." He has come out ahead by making sure new stocks correct before he buys.
Such investors hearten the 111 Internet companies registered to go public, as counted by CommScan's EquiDesk service. They want to see strong after-market demand for Net stocks before going public. But "it may take a bigger correction" to wring out excesses, says Linda Killian, manager of the Renaissance IPO Fund. Even if the market rebounds, she says, IPOs will face "more discriminating" investors. |
