The story below illustrates what can happen when the street loves a stock. Today Sycamore could buy Newbridge for half their market cap, go figure...
Regards
Glenn
Sycamore Networks Wows the Market With Its Public Offering
By Kevin Petrie, Beth Kwon and Greg Wirth
Staff Reporters
10/22/99 9:06 PM ET
thestreet.com
Price be damned.
Investors just had to get a piece of Sycamore Networks (SCMR:Nasdaq), which went public Friday.
Shares of the Chelmsford, Mass.-based builder of fiber-optic network systems shot up to 270 7/8 from an IPO price of
38 -- an increase of over 612%. It chalked the highest first-day increase of the year -- at least for favored clients of
underwriters -- then settled to finish at 184 3/4. The fiesta left various investors, analysts and investment bankers
slack-jawed on what the market had wrought.
"We have never seen a deal like this -- it was completely off the charts," says an investment banker involved in the
deal who requested anonymity. According to the banker, the underwriting banks had requests for more than 240
million shares -- 32 times the 7.5 million shares Sycamore was offering in the IPO. As a result, indications of interest
mounted rapidly before lead underwriter Morgan Stanley Dean Witter released the shares to hopeful investors.
"When I saw some of the bids [before trading started], I thought it was a typo on my screen," says the banker, adding
that much of the bidding was coming from institutional investors. After Sycamore hit its high note on its opening price,
the entire underwriting desk gave the company a standing ovation, the banker adds.
"When Netscape went public, it broke the speed of sound," says Scott Sipprelle, president of Midtown Research, an
independent IPO research firm. "Now with Sycamore, we've broken the speed of light." Midtown was not part of the
Sycamore underwriting team.
Sycamore is hot because its managers earned their spurs at Cascade, the highly-successful Cisco (CSCO:Nasdaq)
nemesis that is now part of Ascend, a unit of Lucent (LU:NYSE). Secondly, networking IPOs have soared on their
first-day outing and have continued to climb even after the predictable first-day pop.
Investors also figured that because Cisco paid $7 billion for Cerent, another optical networking company that was
about to go public, Sycamore must also be hot.
"Nobody wants to miss out on the next Juniper (JNPR:Nasdaq)," says internet.com analyst Tom Taulli. Juniper has
been one of the best market performers of the year -- up 661% from its offer price based on Thursday's close,
according to IPOMonitor.com.
Unlike most newly public Internet companies, networking companies have climbed even after the first-day pop. F5
Networks (FFIV:Nasdaq) is up 792.5% from its offering price, while Redback (RBAK:Nasdaq) and Foundry Networks
(FDRY:Nasdaq) are up 441% and 562%, respectively. They form one of the few sectors that didn't budge during the
August slump.
Juniper Soars
Juniper Networks' aftermarket performance since its IPO.
Redback Roars
Redback Networks' aftermarket performance since its IPO.
Sycamore has revenue of just $11.3 million, all from one customer, Williams Communications (WCG:NYSE). While
Cascade built large electronic Internet switches for telephone carriers, Sycamore systems help carriers direct
streams of light signals through fiber-optic networks.
"There is a significant shift underway in networks, moving from electrical to optical technologies," says Sycamore
CEO Dan Smith, speaking after the IPO Friday. Sycamore will compete with telecom giants such as Nortel (NT:NYSE)
and Ciena (CIEN:Nasdaq).
Of course, today's action translates into some outlandish comparisons. Sycamore's $14.4 billion market
capitalization now exceeds Juniper's $13.1 billion, and Redback's $5.2 billion. Sycamore trades at more than 1200
times its paltry revenue, compared to Juniper at about 417 times revenue and Redback at 122.
Such mathematical realities didn't stop one dim-witted participant on the Yahoo! Finance boards from gushing:
"JNPR IS CHEAP AT 260 IF SCMR IS 200-270."
At the close, Sycamore was down some 32% from its top price. On the Silicon Investor boards, one giddy poster
boasted: "I have 2,000 shares at 269 1/2. Down about $140,000 but that's only on paper. HA HA HA HA HA." |
