Barron's has a not-so-upbeat writeup on UBID. What does Barron's know, right? other than the few million readers who may just be fools.
Barron's Online -- November 30, 1998
Fleeting Fame
What uBid may enjoy until reality sets in
By SCOTT REEVES
UBid Online Auction's IPO will be a screamer. It's a small deal in the hot
Internet sector led by a top underwriter -- and that translates into a
resounding opening premium.
But there is little here for individual investors. In most cases, the little guy
won't get in at the offering price and the few who do are in for a wild ride.
Those who buy in the aftermarket during the first day of trading and hold the
shares will get clobbered, just like the greater fools who bought theglobe.com
in the aftermarket. The prudent investor probably should stand back, enjoy
the fireworks and look elsewhere for opportunities.
UBid isn't another eBay. Unlike eBay, it has no profits and faces stiff
competition. EBay links individual buyers and sellers and holds no inventory.
But uBid acts as a clearance house for a range of computer and high-tech
vendors, linking major manufacturers with individuals. UBid provides a
24-hour online auction site for excess goods, offering buyers close-out and
refurbished products. Brand names sold by uBid include AST, AT&T, Aiwa,
Apple Computer, Canon, Casio, Compaq, Dell, Gateway, Hewlett-Packard,
IBM, JVC, Lexmark, NEC, Panasonic, Seagate, Sony and Toshiba. UBid
relies on vendors for its supply of excess goods and notes, and the prospectus
notes that "the availability of such merchandise can be unpredictable."
EBay's early success acts as a barrier to entry, and it has no major
competitors. But uBid operates in a crowded field and faces direct
competition from OnSale, Z-Auction and First Auction. Others like Internet
Shopping Network, AOL and Cendant specialize in electronic commerce or
derive a portion of their revenues from it. In addition, some PC manufacturers
offer clearance prices on old models, and there are scads of catalogue
retailers with Websites.
EBay's stock took off after a DLJ analyst said the company "displays all the
characteristics of an Internet category leader." EBay's IPO, priced at $18 a
share, opened September 24 at 53 1/2, hit a high of 234 1/8 this month and
recently traded at 203 1/2 . For the quarter ending September 30, eBay
reported net income of $663,000, or two cents a diluted share.
UBid was incorporated in September 1997 and began Internet auctions in
December. Net revenues grew to $5.8 million in September from $157,000 in
January and totaled $24.1 million for the nine months ended September 30.
But for those same nine months, the company reported a net loss of about $3
million and an accumulated deficit around $3.3 million. UBid expects to incur
losses for the "foreseeable future."
The Elk Grove Village, Illinois, outfit plans to offer 1.58 million shares at
$13-$14 each via Merrill Lynch. Net proceeds will be used for working
capital. The proposed Nasdaq symbol is UBID. The deal is expected to be
priced this week. Creative Computers, the parent company, will hold about
82.3% of the shares after the offering, and it plans to distribute its stake to
shareholders at least six months after completion of the initial offering.
UBid is a stock for true believers. Expect those who are enraptured by the
Internet to show up in the aftermarket, waving money. The company operates
in their playground; therefore they could be nuts about the issue and willing to
pay a nutty price for it. This is the same mentality that played a part in driving
theglobe.com beyond all reason. The Internet hosting company, which allows
users to create their own Websites and link up with like-minded souls, came
to market after a sharp downdraft in the broad market had knocked Internet
companies from the calendar for about two months. During that time,
established companies operating in proven fields such as Conoco, Fox
Entertainment and MONY Group were priced and launched successful IPOs
with respectable but sedate openings. But such companies couldn't satisfy the
market's insatiable desire for an Internet IPO -- any Internet IPO. Along
came theglobe.com, a so-so company that priced its deal at $9 a share via
Bear Stearns. It opened November 13 at 90, peaked at 97, dipped to 32
1/16 and recently fetched 40 7/8 .
UBid plays into the continued clamor for Internet IPOs. Traders can make
money, but individual investors might be well-advised to stay out of uBid for
at least two earnings periods. Let the stock settle and check revenue growth
before jumping in. No Internet deal is an island (take that, John Donne), and
uBid comes during a rebound in the new-issues market when demand for
Internet stocks is strong. UBid's IPO will pop on the opening, but that pop
won't be for thee. However, the bell will toll for the greater fool who buys
uBid's shares at ridiculously high levels in the aftermarket, holds them and
rides the price down to something beginning to resemble reality.
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