Good Morning All: It loks like Geocties is the talk of the town...
The Wall Street Journal Interactive Edition -- August 7, 1998
Demand Is Strong for GeoCities,
But Deal Won't Rescue IPO Sector
By DUNSTAN PRIAL
Dow Jones Newswires
NEW YORK -- Internet portal site operator GeoCities is expected to explode into the initial public offering market next week, generating headlines and huge profits in its wake.
But observers may be disappointed if they are hoping that a spectacular start for GeoCities will revive the struggling initial public offering market. Recent history shows that although Internet IPOs have been consistent winners this year, their coattails are very short.
Consider that the 19 pure Internet plays that have come public this year have racked up an average first-day gain of 49%, according to Securities Data Co, while all other deals completed in 1998 have averaged a first-day gain of just 12%.
The IPO market has "definitely been deal-specific," said Dave McMillan, head of Lazard Freres & Co.'s syndicate desk. IPO analysts said no single deal will be enough to lift the market out of its current doldrums.
"It's going to take a great number of those specific cases to heal the wounds on the entire body," said Robert Mescal, an analyst at the Institute for Econometric Research, in Deerfield Beach, Fla.
GeoCities is selling 4.75 million shares at an estimated price of between $12 and $14 each through lead underwriter Goldman Sachs & Co, giving the deal a total value of $67 million. The Santa Monica, Calif., company provides space on the Internet for individuals to create their own Web sites.
GeoCities' deal resembles in many respects two other recent hot Internet IPOs, by Inktomi and Broadcast.com. For example, like the GeoCities deal, the other two didn't involve a particularly large number of shares. That helped drive up demand for the two prior to their pricings, and allowed both Inktomi and Broadcast to increase the IPO price of their deals.
Inktomi, a San Mateo, Calif. search engine company, priced 2.25 million shares in June at $18 in a deal also underwritten by Goldman Sachs, well above the initially expected range of $12 to $14 a share. Broadcast.com., of Dallas, which provides audio and video programming on the Internet, sold 2.5 million shares at $18 through underwriters led by Morgan Stanley Dean Witter. Initially, the stock was expected to fetch $11 to $13 a share.
Sources with knowledge of the GeoCities deal said it's many times oversubscribed, and analysts are predicting it will price above its current range. "Everyone's watching eagerly to see if it does well," said Tom Taulli, an analyst with IPO Monitor.com in Los Angeles. "Up to now, the Internet companies have been immune to the real world."
Mr. McMillan said even potentially strong deals will feel the fallout from the volatility that rocked the broader market this week. "A lot of institutions see the volatility in the market and want to reassess their portfolio positions before adding a new credit to their investments. Most people are taking a wait-and-see attitude," he said.
September is shaping up as strong month for IPOs, however, Mr. McMillan said. A spate of postponements in recent weeks in response to market conditions has created a significant backlog of deals waiting to be priced, he said.
Next week's calendar includes three other Internet-related deals.
Citysearch, a Pasadena, Calif., company that posts city entertainment guides on the Web, plans to sell 4 million shares at between $11 and $13. NationsBanc Montgomery Securities Inc. is lead underwriter.
Digital River Inc., an Edina, Minn., on-line commerce software company, is selling 3.2 million shares through lead underwriter BT Alex. Brown Inc. Price talk is between $10 and $12.
Pilot Network Services Inc., Alameda, Calif., a network security company that focuses on e-commerce transactions, is offering 3.25 million shares at an estimated price range of $13 to $15. Credit Suisse First Boston Corp. is lead underwriter.
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