Did anyone see the article in FOrbes. This should get MPP into the 20's easily. It's going to be a long weekend for the longs of MPPP.
NEW YORK. 05:00 AM EDT—Michael Robertson is one of the world's youngest billionaires--theoretically.
Less than two years ago, the 34-year-old web pioneer founded MP3.com (nasdaq: MPPP), a website for digital music downloads. Last week, he joined the growing ranks of instant paper billionaires when his company hit Wall Street with a big bang.
Robertson's company, which lost $1.4 million on sales of less than $670,000 last quarter, is currently valued at some $2.9 billion in the stock market. That means Robertson's 38% stake is worth just a shade above the $1 billion mark, even with the stock's predictable slide after the frantic trading on the first day.
So Robertson is shopping for Malibu mansions and Gulfstream jets, right?
Not if he's smart. You see, like so many other web entrepreneurs, Robertson is sitting on a heap of useless stock. Only about 18% of MP3.com's stocks are floated in the market. The moment the company decides to float more stock, MP3.com's share price is likely to decline. And the more stock MP3.com floats in the market, the further the company's value is likely to slide.
Robertson's dilemma is symptomatic of a problem that haunts the whole Internet industry, according to Barry Hyman, senior market analyst at Ehrenkrantz King Nussbaum. Despite the staggering valuations of Internet stocks, only a small share of the market capitalization ends up in the pockets of the companies themselves.
"Since most web companies lose money, they will sooner or later have to come back to the market begging for more," Hyman points out.
The problem is that by that time it may already be too late: The increased supply will burst the Internet bubble.
When America Online (nyse: AOL) is taken out of the equation, Internet companies have, on average, floated less than half of their outstanding shares. Some, like Priceline.com (nasdaq: PCLN), have floated less than a tenth of the total number of shares. As the table below shows, companies tend to offer the majority of their shares to the public in the long run. Even companies that are run by their founders, such as Microsoft (nasdaq: MSFT) and Dell (nasdaq: DELL), have floated more than two thirds of their shares.
Company Float
Compaq 98%
Intel 93%
Dell 77%
America Online 76%
Microsoft 68%
Top 25 web companies (ex AOL) 41%
What this means is that Wall Street is looking at a mind-numbing liquidity problem. As web companies offer more stock to the public, a wave of secondary offerings is going to wash over the market. The market value of non-floating stock among the top 25 web companies alone is more than $119 billion.
A study of the top 25 web companies found a negative correlation between the size of a company's float and its valuation as measured by earnings to sales. In other words, the more stock an Internet company offers to the public, the lower the stock is likely to be valued in the market.
So far, the experience of web companies that have returned to the market is not heartening. Research firm CommScan LLC found that of this year's 15 Internet "piggybacks"--the firm's term for offerings that come a year or sooner after an IPO--all but two have dropped below the follow-on offering price.
What does this mean for today's web titans? For one thing, it means that Wall Street won't open up its money bag as easily in the future. And that, in turn, means that web companies may eventually have to look for money elsewhere to fill the black hole on their income statements. Some Internet companies are already beginning to realize this and have allowed themselves to be gobbled up by deep-pocketed giants such as General Electric's (nyse: GE) NBC.
Unless they move fast, MP3.com's Robertson and other entrepreneurs will soon find that their billions aren't worth any more than the paper they're written on.
|
