WHO REALLY WINS WITH
UBID'S IPO?
By Peter D. Henig
Red Herring Online
December 3, 1998
"The uBid offering heralds one of the scariest periods in
the market that I've seen in a good number of years,"
says David Menlow, president of the IPO Financial
Network.
How's that for an introduction to uBid's proposed 1.6
million share IPO, scheduled to price Thursday evening
and begin trading on Friday?
"The offering is solid in today's market environment, but
signals to the rest of corporate America with any
semblance of a functioning and smooth Internet division
to spin it off into an IPO," says Mr. Menlow.
Such is the consensus among analysts polled. They
consider the online auction firm's public offering less an
opportunity for uBid to gain a better foothold in the
fiercely competitive Internet auction category than a
way for its corporate parent, Creative Computers, to
reap a nice windfall -- it will still own 80 percent of the
uBid following the IPO.
"Where would Creative Computers be without uBid?"
asks Francis Gaskins, editor of Gaskins IPO Desktop.
"Probably on the auction block. This IPO just seems
like the figment of an investment banker's imagination."
Plenty of auction action
Not that uBid hasn't at least built a tidy -- if still largely
unprofitable -- business for itself.
UBid's auctions offer excess merchandise, refurbished
products, and close-out deals featuring computers,
consumer electronics, and home gadgets. According to
documents filed with the Securities and Exchange
Commission, in the month of September alone, uBid
auctioned approximately 38,000 merchandise units,
registered over 21,000 users, and recorded
approximately 1.9 million visits to its Web site.
Never mind that its direct competitor Onsale (ONSL),
the first-mover in the online auction category, had
revenues nearly four times larger than uBid's in the third
quarter. UBid would rather emphasize that the market
for e-commerce will be so huge -- growing from $2.6
billion in 1997 to $37.5 billion in 2002, according to
Jupiter Communications -- that all Internet auction
players will be able to enjoy a nice slice of the pie.
"There's certainly an abundance of competition," says
Jeff Lymburner, president and cofounder of Bid.com
(Toronto: BII.TO), a Canadian firm that specializes in
Dutch auctions. "But the sector continues to grow and
consumer acceptance is very strong, which makes it a
very attractive environment."
Perhaps Mr. Lymburner knows something the rest of us
can't see from the outside. The Internet auction space
appears already crowded, with IPO aftermarket
superstars like Onsale (whose stock had recently tripled
amid Internet mania but has since floated back to earth)
and eBay (EBAY) taking the lead. But with sites such
as Yahoo Auctions (YHOO), the Internet Shopping
Network's First Auction, WebAuction, America
Online's (AOL) auction section, and Bid.com already
elbowing for marketshare, and retail sites like
Egghead.com (EGGS) selling refurbished products, it's
a stretch between the surety of the growing market and
assured success for a company such as uBid.
Mr. Lymburner further claims that the "barriers to entry
are greater than many would expect, given the need to
build a system robust and scalable enough to have an
impact in the industry." But online auction sites, uBid
included, are clearly not defining the next breakthrough
technology, like Broadcom (BRCM) or Inktomi
(INKT) are attempting to do, or even setting dynamic
new person-to-person profitable business models, as
eBay has done.
Moonshot or bust
"I'm skeptical, very skeptical," says Ryan Jacob,
portfolio manager of The Internet Fund. "UBid's in a
very crowded field where margins are slim and very
difficult to sustain."
Because uBid must pay for and store the goods
auctioned off on its site, the company's gross margins
are a weak 8 percent of revenue, as compared to eBay,
which has gross margins of 86 percent.
Nevertheless, analysts still expect it to be a hot deal, at
least as far as its first day of trading is concerned.
"A screamer, a real moonshot," says John Fitzgibbon,
editor of the IPO Reporter. "If I had to guess, I'd say it
will trade somewhere in the mid-40s, where all of the
others of the same ilk trade."
Mr. Gaskins agrees. "It's not an eBay, but people are
hoping it will be."
And although analysts point out the many challenges
uBid faces, investors may be willing to endure greater
risks if the overall market segment can keep expanding.
"It's not anymore about being the leader in the category,
but rather how many participants can share in that
fast-growing category," says Mr. Gaskins.
UBid's IPO, given its pure Internet-play roots and small
1.6 million share float, certainly promises to be yet
another boomer public offering -- in the short term, at
least. Whether the stock will have loyal bidders over the
long term, though, remains to be seen.
uBid, Inc.
Proposed ticker: UBID
Proposed offer price: $14.00 to $15.00
Shares offered (mil.): 1.6
Post-offering shares (mil.): 8.9
1997 Sales (mil.): $0.0
1997 Income (mil.): $0.3
Underwriters: Merrill Lynch & Co.; William Blair &
Company
Dec 4/98 ipo$15
UBID closed at $48us |
