Digital River, Navarre Reap in Market for Tech Issues
Eric Wieffering / Star Tribune
Published Tuesday, December 1, 1998
Two Minnesota Internet companies whose shares have risen sharply in recent weeks are scrambling to take advantage of a market in which investor demand for anything .com has eclipsed mundane concerns about revenue and earnings.
Navarre Corp., a New Hope-based distributor of music and software, said it has resuscitated plans to complete an initial public stock offering for NetRadio Corp., its money-losing Internet radio network.
Digital River Inc., which helps software publishers and retailers distribute their products over the Internet, last week said it planned a secondary offering of 3 million shares at $19.37½ each.
Neither company set a date for the sales, but one Internet analyst expects both companies to move quickly.
"This is the time to strike," said Tim Klein, who follows Internet stocks for Piper Jaffray. "The only question is whether demand for Internet stocks has left the launch pad or is still revving its engines."
Executives at Digital River and Navarre know first hand that timing is everything when it comes to raising money for Internet ventures.
In August, in the midst of this summer's market swoon, Digital River went ahead with its IPO. The result: its shares were priced at $8.50, well below the expected range of $10 to $12. A source familiar with the situation said the Eden Prairie-based firm originally had planned a larger IPO but scaled back the number of shares in light of weak investor demand for all technology issues.
Navarre first announced plans to offer shares of its NetRadio unit in an IPO in July but put the sale on hold after the market for new technology issues weakened.
Those concerns seem but a distant memory in recent weeks, with investor demand driving Internet-based stocks to new highs. While most Internet stocks lost ground Monday, many are still well above the price levels of just a few months ago.
Yahoo Inc., for example, rose from $86 in early August to more than $220 last week. New shares of Theglobe.com Inc., which seeks to compete with Yahoo as a "portal," or gateway, to the Web, soared from $9 to $90 Nov. 13, the first day of trading, even though the company lost $11.5 million on revenue of just $2.7 million in the preceding nine months.
Digital River and Navarre shares went along for the ride in recent days, as investors scoured the landscape for any Web-related issues.
The action in Navarre's stock was particularly heated. Last Tuesday, Navarre's shares could be had for as little as $5. On Monday, 30.4 million shares traded hands -- nearly 30 times the average daily volume -- at prices between $12 and $27. The stock finally closed at $15, up $2.81¼ for the day and 185.7 percent since Nov. 20.
Navarre itself is not an Internet company. It sells and distributes most of its music and computer products through traditional retail channels. No analysts follow the company, which lost $974,000 in the year ended March 31 on revenue of $196.7 million.
But Navarre's NetRadio subsidiary is seen as a potential rival to Broadcast.com, a Web broadcasting company whose shares currently trade at $66.
Though details of the offering are not known, Navarre is likely to retain a substantial ownership stake in NetRadio.
"We would have tremendous value to Navarre if we were valued separately," said Jan Andersen, NetRadio's vice president of sales and marketing.
An IPO would provide NetRadio with money to expand, he said, while freeing Navarre from the obligation of funding development and absorbing losses. In the last fiscal year, NetRadio lost about $1.6 million.
Andersen declined to disclose traffic figures for the company's Web site but said it has been growing 7 percent a week since April 1997.
A Navarre spokesman said investment bankers are working on the deal and the firm expects to name a new NetRadio CEO soon. The current CEO, Eric Paulson, is also the CEO and majority shareholder of Navarre.
Digital River already has filed its notice to sell more shares with the Securities and Exchange Commission, and the company's top executives and early investors stand to gain the most if and when the company completes the secondary offering.
CEO Joel Ronning plans to sell 70,000 shares, and a company he controls, Tech Squared, will sell 200,000 shares. All told, officers, directors and other investors will unload 1.25 million shares, most of which were acquired for an average purchase price of $1.38.
Ronning did not return calls seeking comment.
Digital River's stock, which traded for $11.25 Nov. 2, closed at $30.12½ Friday before retreating Monday to $22.87½. Almost 11.9 million shares traded, more than 20 times the average volume during the preceding 30 days.
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