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"Its Internet IPO Demands Sated, Sanity Returns to Wall Street
By DUNSTAN PRIAL
Dow Jones Newswires
NEW YORK -- A measure of sanity seems to have crept back into the
initial public offering market following weeks of indiscriminate demand for
Internet offerings.
Specifically, an offering this week from Internet content provider
InfoSpace.com Inc. was well received, but didn't generate the type of
investor hysteria that has greeted a string of recent new Internet stocks.
More generally, dismal performances by highly speculative new issues
from companies that lack top-notch Wall Street backing are starting to
point up the limits to investors' craving for all things Internet.
A month ago, extraordinary debuts by EarthWeb Inc. and Theglobe.com
Inc. unleashed a manic run on Internet IPOs. But analysts believe the
frenzy may be subsiding.
"My sense is that the EarthWeb and theglobe.com offerings unleashed a
torrent of pent-up demand for [new] Internet stocks that had been building
for months. Now that we've had a number of Internet deals, it has released
some of that pent-up demand," said Bill Burnham, an electronic-commerce
analyst with Credit Suisse First Boston Corp.
InfoSpace.com of Redmond, Wash., which provides directories, classified
ads, news and other services to online consumers, sold 5 million shares at
$15 each and rose to 20 in its first day of trading, a solid but unspectacular
33% premium. The stock has risen steadily since then, closing Friday at 37
3/8.
The upward trajectory of InfoSpace's shares lies in stark contrast with
many of the company's recent Internet IPO peers, which have fallen
precipitously following initial run-ups. Theglobe.com, for example, hit 97
on its first day of trading, but closed Friday at 34 5/8. EarthWeb hit a high
of 85 1/16 last month, but finished Friday at 41 3/16.
Some market observers cited recent measures taken by online brokerage
firms to prevent dramatic price swings in new Internet issues for the
methodical approach taken by InfoSpace investors. The wild gyrations in
Internet IPOs have been attributed in part to an increase in trading by
novice online investors, who move in and out of the stocks as momentum
shifts.
In response to the unprecedented volatility, online brokerages such as
Ameritrade Holding Corp., DLJ Direct and National Discount Brokers
Group Inc. have placed restrictions on Internet trading of IPOs.
"They put a little shield in there," said Tom Taulli, research director for
Silicon Investor, an online financial Web site. "I think they're afraid of
lawsuits."
Mr. Taulli said the restrictions initiated by the online brokers were put in
place to protect investors from losing significant sums of money once a
high-flying IPO starts losing altitude in the aftermarket.
One step taken by the brokerage firms was to restrict market orders
accepted before an IPO begins trading. Investors who placed open
market orders on Internet IPOs the night before the stock began trading
were getting killed because the stocks were opening at spectacular gains,
then falling back to earth as traders sold, or flipped, the shares to reap
immediate profits.
Consequently, an investor who put an open market order on
theglobe.com, which priced at $9, paid around $90 for the shares after
they began trading. The investor then lost a lot of money as the stock fell in
the aftermarket.
Other offerings this week whose performances back the assertion that
investors are being more selective in their pursuit of IPOs include deals
from Audiohighway.com, Artificial Life Inc. and Concur Technologies
Inc., all of which have either direct or indirect ties to the Internet.
Software developer Concur Technologies, also of Redmond, Wash., rose
84% to 23 after pricing 3.1 million shares at $12.50 each. Shares of
Artificial Life, a Boston software company, ended the week at 15 1/2, an
82% premium to their offering price of $8.50. And Audiohighway.com., a
Cupertino, Calif., provider of online audio content, priced 2.2 million units
at $6.50 via Paulson Investment Co. The shares debuted on Friday and
closed at 7 5/16, a 13% premium.
None of these deals saw the kind of volatility common to Internet offerings
just two weeks ago.
Andy Klein, founder of Wit Capital, an online investment bank and
securities brokerage that has participated in a number of recent Internet
IPOs, said media coverage helped to alert investors that the astronomical
premiums afforded EarthWeb and theglobe.com were aberrations. "I think
you're just looking at a simmering down of what had been an overheated
frenzy for Internet IPOs," he said.
Mr. Klein said initial offering prices for new stocks need to reflect the
emerging influence of retail investors if another surreal run-up in IPO
stocks is to be avoided. Underwriters, he said, need to price IPOs by
striking a balance between retail and institutional demand. "The issuer
leaves money on the table when they allow an IPO to be priced without
taking into account that retail demand," he said.
Next week's calendar is light, given the Christmas holiday.
Pacific Internet Ltd., a Singapore company that provides Internet
services in that country, is selling 2.5 million shares at between $13
and $15 through Lehman Brothers Holdings Inc.
Genesisintermedia.com, a Studio City, Calif., online marketing
company, plans to sell 2 million shares through Millenium Financial
Group. Price talk is $7 to $10.
Rolling Pin Kitchen Emporium Inc., Atlanta, is selling 1.5 million
shares at between $6 and $8 through Nutmeg Securities. The
company operates retail stores that sell cookware." |
