Here's a gem......from our dear mr. Harmon.
I've got a broken clock that keeps better time than this guy. Damn thing is right twice a day, which is better than this guy.
mad2
Copyright 2000 Securities Data Publishing
IPO Reporter
April 03, 2000
LENGTH: 1311 words
HEADLINE: Feature: April Has Stars And Pranks In Store
BYLINE: Omar Sacirbey
BODY:
March may have gone out like a lamb, but the IPO market is roaring into April with more than 60 deals set to price in the month ahead. The deep line-up boasts some heavy hitters from a variety of sectors, including biotech, wireless, Internet technology and microelectronics, as well as some popular portals and a pair of notable spin-offs, all of which have the power to keep the momentum going. But before investors step up to the plate, analysts say, they should be watching for a few April Fool's jokes that could have the bears laughing all month long.
In fact, the gags have already begun, given the performance of some late March pricings. The primary prankster award could go to Abby Joseph Cohen. Last Tuesday, Goldman Sachs' chief market strategist recommended taking a bit of money off the table, reducing equity exposure to 65% from 70% in her model portfolio, warning that tech shares had just about reached their growth potential.
Cohen's comments acted like a wrecking ball on some of the week's pricings - technology and otherwise. ARTIST direct.com, (NNM:ARTD), Telocity Inc. (NNM:TLCT), Allos Therapeutics Inc. (NNM:ALTH) and InterMune Pharmaceuticals Inc. (NNM:ITMN), for example, were priced at $12, $12, $18 and $20 respectively, but closed Thursday at 7 3/4, 13 5/16, 13 3/4, and 18 1/4. Insatiable Appetites
Last week's numbers stand in stark contrast to the doublings of pricings that IPO investors have come to expect, especially from tech outfits. According to data compiled by professors Jay Ritter and Tom Loughran at the University of Florida and the University of Notre Dame, only 39 IPOs doubled on their first day of trading from 1974-1998. Last year, there were 117 such instances, while there have already been 51 offerings that have doubled their price on the first day of trading in 2000. That makes for a lot of money being "left on the table," or the difference between what a company raises and what it could have raised based on the closing price of its stock on the first day.
The phenomenon is a symptom of investors' insatiable appetites for IPOs. In 1999 alone, companies left some $36 billion on the table, while the total was just $27 billion for all IPOs from 1990-1998. And the trend has only become more pronounced during the first three months of this year, with January showing $2.18 billion left on the table, $8.13 billion in February, and $12.1 billion through March 30. "It's clear that investors have been putting high valuations on companies in the Internet technology and biotechnology spaces. But why are underwriters and issuers pricing the way they are?" asks Ritter.
While some say the unprecedented aftermarket demand is attributable to the uncertain potential of New Economy stocks, Ritter asserts underwriters are baiting investors by undervaluing initial filing ranges only to bump them up later.
"There's a lot of gamesmanship involved," Ritter says. "When you look at preliminary prospectuses, you'll see that so many deals were low-balls ... unless the market tanked, these things were going to be trading way above opening. Why? Because underwriters want to create a positive buzz. It tells investors that hey, this is a really hot stock.'"
Joe Misset, managing director of capital markets at CIBC World Markets, has seen plenty of offerings double, as well as prospectuses that start with one pricing and often end up with another almost 50% higher. But he vehemently disputes that underwriters have ulterior motives when it comes to pricing. "You're keying off the comparable companies, and then pricing according to IPO discounts. But people run 'em up," he says, adding "nobody's trying to under-price something. There's no intention to give it away cheaply. You try to strike the right deal."
However, last week's pricing performances are testing what was a given until very recently - investor demand for IPOs. Until that point, IPOs were coasting, even when the market was enduring unusually high volatility, and more recently, an investor spending spree fueled by a desire to cash out following Nasdaq's last record setting day on March 10. "It certainly feels like that the market might be turning a bit, but I wouldn't characterize it as feeling heavy," said Wade Massad, a managing director in the capital markets group at Dain Rauscher Wessels. "In this market, sentiments can change overnight."
Contending With A New Dynamic
Given the continuing deal onslaught, some analysts reckon underwriters are finding it harder to keep up with investor demand and that a slower market might just be the remedy. But pointing to huge amounts flowing into stock offerings during Q1, Massad says the market is shifting rather than slowing. "There's still money out there, (but) you do tend to see a natural movement and rotation within sectors," Massad notes. "We've seen it happen a couple of times over the past 12 months...the ebbing and flowing in the various sectors has sped up considerably lately."
And some stocks are bound to fall victim to the new dynamics. At particular risk are companies looking old hat or that have not yet shown earnings. "The only trend that's coming is that if it's a dotcom and not making money, don't touch it," says Kamal Mustafa, chairman at BlueStone Capital Partners. Companies going public, he explains, need to at least be on the verge of making money, rather than using an IPO to finance technology development and marketing on the road to profitability. "It can't be a three-step process anymore. Profits have to be now."
While investors are becoming increasingly wary of "sales now, profitability later" models, other factors still hold their sway. "Management teams, technology, and market leadership - those are what matter, not earnings. Those make earnings," counters Steve Harmon, CEO of e:Harmon zero gravity. The bigger risk, he says, are companies that look old hat. Two such examples, in his estimation, are CoolSavings.com (Proposed NNM: CSAV) and Staples.com (Proposed NNM:SDOT). Harmon says the coupon space in which Cool Savings operates is already overcrowded, labeling it "played out." "They're like the fourth cola," Harmon says. As for Staples.com, he says it's a case of a "a mature company spinning off their Web assets. Why should the public flip the bill for its growth? It's a low margin business."
Not that investors don't have a few nuggets to sink their teeth into. With semiconductor manufacturers now riding the top of their industry's cycle, four industry-related companies - Cabot Microelectronics Corp. (Proposed NNM:CCMP), Numerical Technologies Inc. (Proposed NNM:NMTC), DDI Corp. (Proposed NNM:DDIC) and Nova Measuring (Proposed NNM:NVMI) - are ready to go this month and well positioned to prosper. With the Internet and Asia driving demand, "it will be difficult to be bearish on companies that supply equipment to the semiconductor industry," predicts Michael Beall, semiconductor analyst at Davenport and Co. And at least one biotech company, Orchid Biocomputer Inc. (Proposed NNM:ORCH), which landed $72 million in a self-managed placement in January, could survive some of the recent shocks.
Heading up a high-flying wireless sector is AT&T Wireless Group (Proposed NYSE:AWE), in what stands to be the biggest IPO in U.S. history. The company aims to sell 360 million of its shares at a price set between $26 to$32 per share, raising a whopping $10 billion in the process. AltaVista Co., the popular portal, will sell off all of its 14.8 million shares, expected to price between $18 and $20 and raise $258.5 million.
Despite some seemingly sure bets, analysts are unsure as to what lies ahead, especially given the tremors felt over recent months. "These things fly all over the place," says Missett, "Who knows?"
LOAD-DATE: April 3, 2000 |
