Bloomberg takes a shot:
Loudcloud's Andreessen Looks for Silver Lining in Internet Drop
New York, March 2 (Bloomberg) -- Marc Andreessen is a guy who can spot a silver lining.
At a time when young, unprofitable Internet companies are the last thing most investors want, Andreessen, a co-founder of Netscape Communications Corp., is courting buyers for a $180 million initial public offering of his latest Web venture, Loudcloud Inc.
``He obviously sees opportunity where many others don't,'' said George Nichols, an Internet analyst at Morningstar Inc., a research firm.
That Loudcloud's competitors are trading at a fraction of their former value and no Internet software company has been able to complete an IPO for six months isn't a deterrent.
Andreessen, whose offering of Netscape shares in 1995 was the first hot Internet IPO, is taking to heart the adage that some of the best companies go public in a bear market. He and bankers from Goldman, Sachs & Co. and Morgan Stanley Dean Witter & Co. are touring the country to drum up support for the IPO, planned for next Wednesday.
Investors won't be easy to woo. Many have already been burned by Loudcloud's rivals, such as Exodus Communications Inc., Akamai Technologies Inc. and Storage Networks Inc.
Plunging Internet and technology stocks, which dragged the Nasdaq Composite Index down more than 50 percent in less than a year, have all but stamped out demand for IPOs. Just 10 companies have completed IPOs so far this year, compared with about 70 in the same period last year.
``This is an important IPO because it's got such buzz around it,'' said Nichols. ``People are watching it closely to see if there's any demand at all for companies like this.''
Silver Lining
Loudcloud's silver lining may prove to be Andreessen himself, investors said. The 29-year old is credited with developing the first Internet browser and taking Netscape from a start-up to a $10 billion company before being bought by American Online Inc.
``There's only one reason why this thing is getting done at all; and that's Marc,'' said Darren Chervitz, director of research at Jacob Asset Management. ``I can't imagine a less desired company right now.''
Loudcloud, whose Opsware and Smart Cloud software helps clients build and maintain their Internet operations, halved its valuation in February to take into account the plunge in values of its peers. It dropped its expected post-IPO value to $674 million from the $1.3 billion the company expected when it first filed terms of its IPO in October.
New investors are also getting a bigger piece of the business. About 30 percent of Loudcloud will be in public hands after the IPO, compared with an initially planned 10 percent. That puts more money in Loudcloud's hands. The net proceeds to the company will grow to $166 million from $101 million earlier estimated. The 20 million shares will be sold at between $8 and $10 apiece.
Yesterday's Model
Even at a reduced value, Loudcloud typifies the model of company that ended up burning investors last year. It is 18 months old and started selling its product six months ago. It lost $108 million in the nine months through Oct. 31 on revenue of $6.6 million and is not likely to turn a profit in the near future. The company has about $95 million in cash.
``They may be catching a lot of marquee names from Silicon Valley but I'm very skeptical of their business model,'' said Ross Sakamoto, a fund manager at Symphony Asset Management.
Loudcloud's reduced valuation is still more expensive than its rivals, Sakamoto said.
Even if it made $12 million in sales by the end of the year, the company would still be valued at 56 times sales. That compares with 9.7 times for Exodus, 29 times for Storage Networks and 19 times for Akamai, according to Bloomberg.
On a book value basis, though, the offering is more in line. Loudcloud would have a price to book of a little over two times compared with Storage Networks of 3.9 times, Akamai of 0.61 times and Exodus of 11 times.
Internet Customers
About 19 percent of Loudcloud's 45 or so customers are Internet companies such as Drspock.com and Britannica.com. Customers also include News Corp., Ford Motor Co. and Fannie Mae, the largest issuer of mortgage bonds. Together they ordered about $120 million of business from Loudcloud through to the end of 2000. Compaq Computer Corp. is also a customer and agreed to buy $5 million worth of Loudcloud shares at the time of the IPO, at a 5 percent discount to the offering price.
The Sunnyvale, California-based company is trying to expand its reach, setting up offices in Europe where fewer companies have moved their businesses to the Web.
``Our targets are global businesses moving to the Internet, software companies and new Internet companies -- but we're making sure they're well-funded by reliable backers,'' the company's 34- year-old Chief Executive Ben Horowitz said in October. Since then, the company has turned its focus more to non-Internet clients.
Horowitz is one more of a string of former Netscape executives running Loudcloud, including In Sik Rhee, 29, and Jonathan Heiliger, 24. Entertainment industry heavyweight Michael Ovitz and Bill Campbell, chairman of Intuit Inc. sit on the board. Executives, directors and other affiliates will own about 50 percent of the company after the IPO.
Those shareholders and Andreessen, who'll own 13 percent of Loudcloud, are counting on the good faith he built up with investors of Netscape to help push through the sale.
``I would say Andreessen's probably enough of a draw that he'll get the deal done,'' said Christopher Ely, who helps manage Loomis Sayles & Co.'s aggressive growth fund. ``Quite often you get some great companies that are able to go public in tough times. We'll have to wait and see if this is one of those cases or not.''
Mar/02/2001 17:18 ET |
