To: Urlman who wrote (212 ) 7/17/1998 5:11:00 PM From: Patricio Millas Respond to
TODAY'S HOT IPO (from briefing.com): Where do we start? As we reported Monday, the initial public offering of aggregator and broadcaster of streaming media programming on the Web, broadcast.com (BCST), was initially expected to price between $11 and $13. But as the week progressed, the hype surrounding this deal increased by the hour, which allowed lead underwriter Morgan Stanley Dean Witter to bump the price range to $14-$16. The deal finally priced even above that level, at $18 a share. If the institutional players were willing to get into this offering at $18 (or at 34 times trailing revenues) there was no doubt that individual investors would be willing to pay at least $30. Maybe $35. Not in our wildest dreams did we imagine that investors would bid the stock up to a $68 opening price. That's right. BCST shares opened at $68, up 278% from their $18 offering price and are currently trading at $62 a share, up 44 points, or 244%. Are investors in Internet stocks stupid or what? Some people would say yes. We don't necessarily agree; at least not in this case. Greedy and/or frustrated would probably be more accurate descriptions. After watching anything with the word Internet in its description fly out the gates and go on to double and triple over the next several months, investors were determined not to sit on their hands again and let the next, great Internet stock stock past them by. So, with dollar signs in their eyes, they placed at-the-market buy orders for the stock this morning, hours before the issue was to begin trading. The problem with placing this type of order on an IPO is that one has absolutely no idea where the stock will open. There are no pre-opening or market-maker indications. Given that broadcast.com simply does not possess the fundamentals to support a $68 price, it was no surprise that investors began dumping the stock once they became aware of the outrageous price at which their order had been executed. What happens next?: There is no question that at 117 times trailing revenues (even Yahoo! trades at slightly less than 90 times trailing revenues), BCST is dramatically overvalued. But we have seen examples of this type of Internet IPO froth before (though not quite this extreme). In each case, the stock has made a sharp retreat from its intraday high on the first day, and may have continued to slip over the next session or two. But in the end, each of these high-risers has gone on to double or triple in price. It certainly is a stretch to imagine BCST making that type of move over the next few months (a real stretch), but Internet stocks seem to always prove the logical investor wrong. In fact, we wouldn't be surprised if this stock actually opened to the upside on Monday morning.
