Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Non-Tech : E*Trade (NYSE:ET) -- Ignore unavailable to you. Want to Upgrade?

To: ecommerceman who wrote (12651)	3/19/2000 7:13:00 PM
From: ecommerceman	Read Replies (1) \| Respond to of 13953

This oughta give some folks a little pause... If You Think Last Week Was Wild ... NYTimes, March 19, 2000 nytimes.com NEW YORK -- The Nasdaq stock market, which has more rpms these days than a Nascar racer, hit a small speed bump last week. In the first three trading sessions, the Nasdaq composite lost 9 percent of its value. Happily for investors who have poured money into technology stocks and mutual funds, the composite rebounded nicely to close the week at 4,798.13. While the recent swerve was unsettling, the Nasdaq is still up 18 percent so far this year. One of the biggest factors behind its surge has been the action in newly public companies. Initial public offerings, most of which trade on Nasdaq, are averaging 100 percent gains in their first day of trading this year, up from the 60 percent gains that were typical in 1999. Eye-popping moves like these are almost entirely owing to the tiny supply of shares in new companies, balanced -- or perhaps imbalanced -- against the titanic demand for them. Which makes it well worth noting that over the next two months, the supply-demand equation in these shares will change significantly. That not only could depress the highfliers, but it could dampen the performance of the Nasdaq over all. According to Steven Galbraith, research analyst at Sanford C. Bernstein & Co., the increased supply in new-company shares will come from the inside. Top executives at companies going public usually agree to abstain from selling their shares into the open market for a period of time after the offering date. These agreements are known as lock-up periods. Many lock-up periods are about to expire, unleashing what could be a flood of shares onto the market. By Galbraith's reckoning, over the next three months some 2.4 billion shares of stock in last year's new issues -- more than twice the current number of shares trading in these companies -- will be free to enter the market. Because these companies have seen huge price increases since they came public, it is a good guess that many executives will be eager to sell what they can of their holdings. How big are the gains that the insiders are sitting on? While the initial value of these offerings was $52 billion, their worth, as of last week, had rocketed to $256 billion. Only one in four of these companies makes money, Galbraith noted. "It truly is the physical supply-demand dynamic of the piece of paper that is determining the near-term valuation of these securities, not the intrinsic value," he said. The current heat of the IPO market is encouraging even the greenest, most untried companies to go public. In fact, Galbraith argues that companies which might have been attractive bets to early stage venture capital investors are now bypassing the incubator stage and selling shares directly to the public. Given that about three-quarters of early venture investments typically fail, Galbraith suspects that within a year or so, many of these stocks will have hit the skids. Unfortunately, that unwinding will hurt individual investors much more than institutions. While institutions are the initial owners of these shares -- 90 percent of IPOs are allocated to favored mutual funds and other large investors -- individuals typically own them in the months after their debuts. Galbraith found that nine months after an offering, institutional ownership amounted to around 10 percent. Many of the companies that came public last year are already trading well below their offering prices, a situation that will only be exacerbated by a fresh supply of shares. The big guys in these deals are long gone, having pocketed their enormous profits. And individual investors? Once again, they will be left holding the bag.