Internet 'Infrastructure Firms' Are Top-Performing Net IPOs
By DUNSTAN PRIAL
Dow Jones Newswires
NEW YORK -- As the dust settles over the landscape for new Internet-related offerings, it is worth noting that investors are apparently savvier than many had thought.
The prevailing myth surrounding the recent frenzy for initial public offerings of Internet companies holds that unsophisticated investors have arbitrarily pushed the values of new, super-hyped Web stocks to absurd valuations.
For the most part, however, the IPOs that have shown staying power this year haven't been the high-profile deals from sexy-content providers whose brands are household names among the online crowd. Instead, the big aftermarket winners have emerged from the more mundane Internet infrastructure sector. Indeed, seven of this year's current top-10 IPO performers are considered infrastructure companies.
Analysts say the novice-investor theory is valid, but only to a point. First-day gains of 200% and 300% certainly became commonplace because of enthusiastic momentum trading on the part of retail investors. But most of those first-day phenomena have faded.
Consider the aftermarket performances of well-known content providers iVillage Inc., iTurf Inc. and TheStreet.com Inc. All three stocks tripled in value in their debut sessions but have since lost at least half of those gains. And iTurf, a New York Web site for teenagers, is now consistently trading below its offering price of $22 a share. Its shares ended Friday at $18.875 in Nasdaq Stock Market trading.
Now consider the infrastructure companies. The seven new issues currently entrenched in the top-10-performers list for 1999 have gained an average of about 350% from their offering prices.
"A lot of people are leery of service and content vendors," said Robert Herwick, president of Herwick Capital Management. "How many car-selling sites do we really need out there?"
By contrast, he said, the Internet-infrastructure category consists of "very real companies with very real technologies that have already proven an ability to execute" a business plan.
The top-performing newly public infrastructure companies are software makers Healtheon Corp., Portal Software Inc., Bottomline Technologies Inc. and Brocade Communications Systems Inc.; high-speed Internet-access companies Redback Networks Inc., and Copper Mountain Networks Inc.; and Latin American portal company StarMedia Network Inc.
Internet-infrastructure companies have been able to sustain their aftermarket gains because institutional investors view the stocks as long-term investments, according to Mr. Herwick. "Investors are looking for companies with high market share, high barriers to entry, and high growth potential. These companies are interesting because they span the entire scope of the Net, rather than having to niche themselves into a defensible position," he said.
Infrastructure stocks have emerged as a favorite selection of the 18-month-old Renaissance IPO Fund, said Kathy Smith, co-manager of the mutual fund that invests exclusively in new issues. Some recent picks include WorldGate Communications Inc., which is developing a system to deliver the Internet over cable-TV systems; Equant, which operates the largest data network in Europe; and two high-speed Internet-access companies, Covad Communications Group Inc. and PairGain Technologies Inc.
Juniper Networks Inc. and CopperCom Inc. have been cited by analysts as two of the more high-profile infrastructure companies either planning or rumored to be pursuing IPOs.
Juniper Networks said in an April filing with the Securities and Exchange Commission for an IPO that it makes "next-generation Internet backbone routers" that enable online networks to improve speed and efficiency. The preliminary prospectus didn't include the number of shares to be offered or their estimated price range. Goldman Sachs Group is lead underwriter.
CopperCom makes products for digital subscriber line, or DSL, networks, which provide high-speed access to the Internet over existing copper phone lines. CopperCom's president and chief executive officer, Cynthia Ringo, said the company was at least a year away from an IPO.
Next week's calendar includes:
Litronic Inc., an Irvine, Calif., Internet data-security company, is selling 3.7 million shares via Bluestone Capital Partners. Price talk is $9 to $11. DrKoop.com Inc., an Austin, Texas, company that operates an online consumer health-care network, is issuing 9.4 million shares through Bear Stearns Cos.' Bear, Stearns & Co. Price talk is $7 to $9. Backweb Technologies Ltd., an Israeli Internet software company, is selling 5.5 million shares at $8 to $10 through lead underwriter Goldman Sachs. Ditech Corp., Mountainview, Calif., is selling three million shares through BT Alex. Brown Inc. Price talk is $11 to $13. The company makes network parts for telecommunications and cable systems. CRL Network Services Inc., a San Francisco Internet-services firm, plans to issue 5.9 million shares via lead underwriters CIBC World Markets and Lehman Brothers Inc. Price talk is $12 to $15. |
