Software.net opens at 40% premium
Debut bodes well for beleaguered Egghead.com
By Darren Chervitz, CBS MarketWatch
Last Update: 11:52 AM June 17, 1998
SAN JOSE, Calif. (CBS.MW) -- Online retailer software.net rose 44
percent Wednesday on its U.S. stock market debut as Internet-related
deals continue to overcome weakness in the IPO market.
The San Jose, Calif.-based company (SWNT) sold 5 million shares to the
public at $9 each, which was on the high end of original expectations. The
company and lead underwriter Deustche Bank Securities (the U.S. unit of
Deutsche Morgan Grenfell) originally expected to price the offering at $7
to $9 each, according to the company's IPO filings.
The stock opened on the Nasdaq stock exchange at 12 7/8, rose as high
as 13 1/2, before falling slightly in early trading of about 1.7 million shares.
Software.net's offering may serve as a test of how bad the IPO market
has gotten and whether Internet deals will still get a warm reception on
Wall Street.
The IPO is also seen as a huge potential boost to Egghead.com (EGGS),
which generated about five times as much sales volume as software.net.
Egghead, which rose 1/4 to 8 1/2, has a market cap of $197 million,
about 34 percent less than software.net's at that company's first trade
price. See original story.
Beginning with the late January IPO from digital certificate developer
VeriSign (VRSN), Internet-related companies have provided some of the
biggest fireworks in the 1998 new issue market. According to
CommScan's EquiDesk, Internet-related deals at the end of last week had
gained more than 30 percent above their offering prices, more than double
the gains achieved by the IPO market as a whole.
Even as the fundamentals of the IPO market deteriorated last month,
Internet-related deals such as the red-hot Inktomi (INKT) offering
remained among the few highlights. Inktomi shares were offered last week
for the first time at 18; they now sell for 38.
The days of the Internet being a sure bet in the
IPO market may be disappearing. After a strong
first day of trading on May, Internet service
provider Verio (VRIO) has fallen well below its
$23 offering price. And last week, advertising
management software developer NetGravity
(NETG) gained only 11 percent above a $9
offering price that came in at the low end of
expectations. While far from a complete disaster,
the NetGravity deal was a sign that not every deal
painted with an Internet brush was guaranteed to
soar.
Software.net is the first pure Internet commerce
play since CyberShop (CYSP). How the San Jose, Calif.-based
software.net performs could be of great importance to other Internet IPO
hopefuls waiting in the wings, such as PointCast, GeoCities and
software.net competitors Cyberian Outpost and Digital River.
Analysts, including Standard & Poor's Mark Basham and IPO Value
Monitor's Ryan Jacob, predicted the software.net IPO would do well, at
least in the beginning.
Jacob said on Tuesday that the IPO would be boosted by the fact that
software.net's chief executive was vice president of marketing at
Amazon.com (AMZN), one of 1997's hottest IPOs. Plus, software.net's
lead underwriter also handled the Amazon deal. "They're going to play
that for all its worth," Jacob said.
Neither Jacob nor Basham care much for software.net in the long-term.
"Competition is intense and only going to get worse," said Basham, who
also fears that software developers won't need a middleman like
software.net to sell their products. "How is software.net going to be more
effective at reaching out to users than IBM (IBM) or Microsoft (MSFT)
or whoever?"
Francis Gaskins, analyst for Gaskins IPO Desktop on the Internet, is even
harsher on the deal. "Software.net should thank their lucky stars if they get
their offering off the ground," he said. "Another amazing selling effort by
underwriters." While other Internet retailers like Amazon.com boast of
repeat purchases from customers at about 50 percent of sales, Gaskins
said software.net is disturbingly silent on the issue of customer loyalty in its
prospectus.
Software.net, spun-off from electronic commerce
service provider CyberSource last year, generated
first-quarter revenue of $6.2 million vs. $3.2
million in the year-ago period. Forty-three percent
of that revenue came from U.S. government
agencies. Losses reached $2.2 million in the
quarter compared to $169,000 in 1997, and the
company expects those losses to increase "for the
foreseeable future", due in part to multimillion
dollar distribution agreements it recently signed
with America Online (AOL) and Excite (XCIT).
At a $9 offering price, the company would be
valued at about $230.1 million, not including
outstanding options or debt. The company has also given its underwriters
the option to sell an additional 750,000 shares if needed, a typical
practice called the green shoe or over-allotment option. |
