Get ready for next IPO wave
REUTERS
LOS ANGELES, Sept 10 ? After a late summer lull, a new crop of promising young Internet companies is poised to test Wall Street?s appetite for initial public offerings of cyber stocks. Success among the newcomers could trigger another avalanche of Internet IPOs, possibly more than the market can handle.
MORE THAN 90 COMPANIES are planning to raise money in September and October by selling their stock to the public for the first time.
How many of them follow through on those plans will depend at least partly on the success of companies that go first, especially hot Internet names such as NetZero, a provider of free dial-up access to the Web, and E.Piphany, a company that helps businesses sell online.
?I think you?ll see some pretty spectacular gains over the next two weeks, and then oversupply will kick in again,? said Ken Fleming, an analyst with Renaissance Capital. ?There?s clearly demand for a select number of hot tech companies.?
WHAT HAS COME
Driven by Wall Street?s fixation with the Internet, the IPO market soared during the first half of 1999.
The biggest first-day gainers included Redback Networks, a data-networking company; eToys, a online toy retailer; and Ariba, a maker of business-to-business e-commerce software.
Redback debuted May 18 for $23 and rose 266 percent to $84.13. EToys, which went public two days later, soared from $20 to $76.56 ? a hefty 283 percent gain. Ariba?s stock came out on June 23 and established itself as the year?s benchmark for opening-day gains. After pricing at $23, the stock rocketed 291 percent to $90.
But investors grew pickier as summer wore on and a seemingly endless flood of new issues appeared.
Several well-known Net IPOs fell below their asking price in the first couple weeks of August. Broken IPOs included online recruiter hotjobs.com, Web-based insurance quote service Quotesmith.com and flower retailer 1-800-Flowers.com. Several others new stocks showed only the smallest gains.
1-800-Flowers may have been the most surprising loser. It was brought to market by hot underwriter Goldman Sachs, priced above range at $21 but closed at $18.19 on its first day. Since then, it has never traded higher than $23.19 and rarely breaks out of a $16-$18 range.
Most late summer IPOs, however, managed to eventually shake the doldrums. On average, August?s IPOs are up 58 percent from their first-day finishes, said Fleming.
Hotjobs.com, for example, fell in first-day trading on Aug. 10 to $7.63 from its $8 offering price. It has rebounded strongly and closed Thursday at $28.38.
Some offerings were so sought after that they proved slump-proof. Red Hat Inc., a North Carolina company that sells a commercial version of Linux, an alternative operating system to Microsoft?s Windows NT, set an initial price of $14 on Aug. 11 and finished the day at $52.06, a 370 percent increase. It rose steadily in the weeks that followed and closed Wednesday at $123.25.
WHAT?S ON TAP
The companies expected to hit the market next week include several that were scheduled to launch in August but postponed after the market grew volatile.
Among them is Garden.com, an online retailer of gardening supplies that is scheduled for Monday. The company got cold feet after 1-800-Flowers.com failed to do well, said Corey Ostman of Ostman?s Alert-IPO, a company that monitors the IPO market. NetZero and E.Piphany are scheduled to debut the following week.
As a whole, 1999 is shaping up as one of the busiest years ever for IPOs, largely because of the eagerness of Internet companies to go public.
?I have never seen an IPO market as dominated by one industry as this year?s has been,? said Jay Ritter, a University of Florida finance professor who researches the IPO market.
?Even 20 years ago, when oil stocks were booming, oil and gas did not dominate as much as now, or eight years ago when biotech was at its peak,? he said. ?There are an awful lot of Internet companies that have been financed the past two years, and the business plan typically is to go public at some point.?
That has created a serious problem for some of the companies planning IPOs. Highly regarded names can do well in an overcrowded market, but others get lost, said Fleming at Renaissance Capital.
During the first quarter of 1999, there were 81 IPOs, raising an average of $125.6 million, according to Hoover?s IPO Central. In the second quarter, 150 companies entered the market, but the average value dropped to $110.3 million.
?The whole problem this year has been just too many deals, too much supply,? Fleming said.
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