E-Commerce Eagerness Triples uBid's Value
(12/04/98, 12:29 p.m. ET)
By Sergio G. Non, TechWeb
As far as Wall Street is concerned, a website whose business consists of auctioning computer equipment that can't be sold through normal channels is worth three times as much as uBid's underwriters figured.
On its first day as a public company, UBid shares closed at 48, up 220 percent from the IPO price of 15. UBid, the third technology IPO in as many days, was already at 40 when it hit the trading floor.
Elk Grove, Ill.-based uBid, a subsidiary of Creative Computers, runs an online auction site for close-out and refurbished computer products. After Friday's offering of 1.58 million shares, Creative Computers now owns a little more than 80 percent of uBid.
Friday's IPO netted $22 million for uBid, which said it will use $15 million to pay for advertising, infrastructure, and brand development. The rest of the proceeds will go to general expenses.
UBid paid $1.3 million in underwriting fees. Merrill Lynch led the effort, with William Blair & Co. assisting.
Rather than focusing on uBid's business, investors seemed to be mesmerized by one paragraph in the company's IPO filing with the U.S. Securities and Exchange Commission, said Francis Gaskins, editor of Gaskins' IPO Desktop.
In that paragraph, uBid cited a Jupiter Communications study that predicts computers and electronics will be the single largest online retail category in the United States, with growth increasing from $836 million in 1997 to $10.5 billion in 2002.
"They got a quote from Jupiter that said the market growth in their category was going to go nuts," Gaskins said. "Once you get a sentence like that, that almost guarantees in this market that you can go hot."
After a summer of lethargy for IPOs, investor in recent months have been voracious in snapping up e-commerce issues. Online auction house eBay was the first Internet company this fall to test the waters, when it made a stunning debut in September.
UBid "could not have gone public before eBay," Gaskins said.
But even though the two companies are both in the online auction business, their business models are completely different, Gaskins said. "People have called me and asked what the difference is between uBid and eBay, they don't know," he said. "I just think in general, they haven't thought it through."
UBid's gross margins are much lower than eBay's, Gaskins said, because the former has to sell its own "off-brand, secondary, not-prime-time stuff," while the latter gets fees by acting as an agent for someone else's auction.
As is the norm for new Internet companies, while revenue is growing, uBid is still losing money as it works with an evolving and unpredictable business model.
From December 1997, when uBid was founded, through Sept. 30, the website has hosted more than 138,000 auctions, including 38,000 in September alone. UBid saw revenue of $15.3 million in the three months ended Sept. 30, up 126 percent from $6.75 million in the previous quarter.
Losses increased 10 percent over the same period, to $1.09 million from $993,000.
Although volume of 38,000 is low compared with other auction sites, it may make more sense to look at uBid as a division of its catalog sales and direct marketing parent, just as Surplus Direct is an arm of Egghead.com, said Shin-Pei Tsay, an analyst with Giga Information Group.
"It's more of Creative Computers competing with Egghead, as opposed to uBid competing with Surplus Direct," she said. <Picture: TW> |
