Tech Week
Happen to Miss eBay, theglobe, uBid? You'll Get Many More Shots in 1999
By NICK WINGFIELD
THE WALL STREET JOURNAL INTERACTIVE EDITION
The last week of the year is usually a time when high-tech firms take a
breather from their marathon bouts of frenzied coding.
In California, traffic along Highway 101, one of the major arteries through
Silicon Valley, lightens up a bit as the region's digital worker-bees nurse
Tryptophan hangovers from Christmas turkey dinners and gear up to sip
bubbly on New Year's eve.
But in the corner offices of some Internet companies, one's more apt to hear
the flutter of paper work than the sweet silence of vacationing executives.
The papers in question are initial public offering registration statements --
affectionately known as "red herrings" -- a handful of which were dispatched
by Internet companies to federal regulators this week in preparation for
expected debuts early next year. While it's common for companies to use the
downtime around the holidays to complete some of the grunt work required
for an IPO, the prevalence of ".com" -- that ubiquitous badge of
cyber-centric companies -- in the most recent red herrings is striking.
The message to Wall Street naysayers who groaned earlier this year over
the speculative stock orgies that supercharged theglobe.com Inc., eBay Inc.,
uBid Inc. and EarthWeb Inc.: As far as Internet companies are concerned,
expect more of the same in 1999.
First, there was the as much as $50 million filing by MiningCo.com Inc., a
Web navigation service that started life two years ago as General Internet
Inc., switching its corporate name in December 1998 to give it more of a
cyberspace punch. Like many other Internet firms, MiningCo.com is still
swimming in red ink: Losses for the nine months ended Sept. 30 totaled $9.1
million on $1.6 million in revenue. That compared with $6.9 million in losses
in the year earlier period on revenue of $181,000.
Financial figures like that are apt to make more conservative investors
squeamish. Still, Peony Kao, an analyst at the Renaissance Capital, a
Greenwich, Conn., that tracks IPOs, believes the IPO shows promise,
summing up the scope of the analysis many investors are likely to do on
MiningCo.com: "This is going to be a hot deal -- first of all, there's a '.com' in
the name."
This week also saw an unusual proposal from OneMain.com Inc., a
company formed in August 1998 solely with the intention of acquiring
existing Internet service providers. On its own, the company has no
operations, but plans to use a portion of the proceeds from a $112.6 million
IPO managed by BT Alex. Brown Inc., Soundview Technology Group and
Wit Capital Corp. to buy 17 regional ISPs across the U.S., companies that
range from LebaNet Inc. in Cornwall, Penn., with 235 subscribers to
JPS.Net Corp. in Sacramento, Calif., with 84,513 subscribers. Collectively
the 17 firms had losses of $16.6 million in the nine months ended Sept. 30 on
revenue of $37.5 million.
In Wall Street lingo, the OneMain.com plan is known as a "roll up," a
technique used to consolidate a fragmented industry into a single
superpower. While tycoons like Wayne Huizenga have popularized roll ups in
other sectors, the strategy is gradually becoming more common among
Internet companies. Zapata Corp., the fish meal and sausage casing maker,
earlier this year proposed spinning off a separate company called Zap Corp.
that would use an the proceeds from an IPO to buy dozens of tiny Web
publishers. The plan was shelved after the IPO market tanked in the
summer, but recently Zapata resurrected its Internet strategy.
For her part, Ms. Kao said she believes the OneMain.com could be
appealing to investors if the combined companies can reduce costs by
centralizing operations like billing and marketing.
If the two IPOs aren't enough to sate the appetite of hungry Internet
investors, there were a flurry of others filed earlier this month, all of which
are expected to debut in the new year. Priceline.com Inc. -- a company that
lets users to name their own price for airline tickets, hotel reservations and
other items -- filed for an offering of $115 million worth of common stock.
Meanwhile, computer magazine publisher Ziff-Davis Inc. said it hoped to
issue a tracking stock for its ZDNet online operation in an $115 million IPO.
Investors can also look forward to an IPO from MarketWatch.com, a
financial news publisher jointly owned by Data Broadcasting Corp and CBS
Corp., that is expected to take place in January. (DBC shares shot up Friday
on excitement over the deal.)
All told, about 20 Internet-related companies are planning to go public in the
first quarter of 1999.
If 1999 looks anything like this year, Wall Street will have plenty of cause to
hoist its champagne flute as it heads into the new millennium. That's because
the 40 Internet related offerings completed in 1998 climbed an average of
120% from their IPO prices, according to Securities Data Co. In contrast,
the average gain for the 332 other new stocks in 1998 was a relatively
measly 1.2%.
But David Menlow, president of the IPO Financial Network in Millburn, N.J.,
worries that a flood of new Internet IPOs could finally bring an end to the
cyberspace stock craze -- an event that would no doubt be welcomed by
many critics.
"A lot of investors are going to get burned," Mr. Menlow said. "The Internet
is only about the perception of what will be down the road without any
consideration for traditional market valuations, even those of a generous
nature."
Hardware and Software
Intuit Corp.'s chief executive proposed that the government enforce
''operating-system neutrality'' on Microsoft Corp. to give all parties equal
access to Windows (see article).
Intel Corp. quietly cut prices on two of its low-end microprocessors earlier
this month, in a sign that the chip giant still worries about increasing
competition and sluggish growth in computer sales. The unannounced Dec. 6
price cuts came on two Celeron chips intended for basic home computers. It
marked the second round of price cuts for the chips since they were
introduced in late August, bringing the total reductions to 40% or more (see
article).
Texas Instruments Inc. said the Asian semiconductor market contracted
about 10% this year in revenue terms, but demand picked up in the fourth
quarter and is likely to sustain itself into the next quarter (see article).
CalComp Technology Inc. said it likely will be forced to liquidate by the
middle of 1999 as a result of majority owner Lockheed Martin Corp.'s
decision to cut off additional credit for continuing operations. Although
CalComp said it is seeking a buyer for all or part of its operations, the maker
of computer printers said it is optimistic it can carry out an "orderly
shutdown" with Lockheed's assistance (see article).
H.R. Hambrecht & Co. said it agreed to acquire Interlinq Software in a
$35.8 million leveraged buyout, and plans to take the maker of
financial-management software private (see article).
Internet and Online
Holiday retail sales rose an estimated 3.5% as online sales propped up a
season that otherwise fell short of expectations. Higher Internet sales were
fueled by a large number of first-time online shoppers (see article).
MiningCo.com filed to go public, proposing to offer up to $50 million in stock
in an initial public offering. The company is the latest in a series of
lesser-known, second-tier Web companies to try to raise money from the
public (see article).
Internet service provider OneMain.com Inc. also set IPO plans, filing to sell
up to $125 million in common shares. The offering is unusual in that
OneMain has no operations at this point, and following the offering will
consolidate 17 small service providers, the biggest of which are JPS.Net
Corp. and U.S. Internet Inc. (see article).
SkyMall Inc. said sales from its Internet shopping site soared in December
and are expected to climb to $2.1 million in 1998 from $300,000 in 1997. In
the latest sign of Internet mania sweeping Wall Street, the in-flight catalog
company's stock nearly tripled in the session after the announcement (see
article).
Telecommunications & Cable
The Justice Department, as widely expected, approved the $48 billion merger
between AT&T Corp. and Tele-Communications Inc. (see article). The
agency granted approval after the companies agreed that TCI would divest
its interest in Sprint PCS over a five-year period (see article).
Separately, AT&T's plan to eliminate 18,000 jobs is nearly complete, a year
ahead of schedule. AT&T Chairman C. Michael Armstrong earlier this year
pledged to phase out those jobs over the course of two years. But so far,
some 15,300 workers already have opted for a voluntary retirement program
that is part of the job-cut plan, the company said (see article).
Bell Atlantic Corp. and GTE Corp. have filed their final written arguments
stating why the government should approve their proposed marriage. In so
doing, they sought to distinguish their merger from another often mentioned in
the same breath: the proposal by Baby Bells SBC Communications Inc. and
Ameritech Corp. to combine (see article).
Another Baby Bell, U S West Inc. said it expects to invest more than $3
billion in 1999 to upgrade its network and improve voice and data services in
its 14-state region. The investment will speed the rollout of consumer
high-speed data services, such as its MegaBit digital-subscriber-line service
(see article).
Year 2000 Problem
The U.S. Social Security Administration's computer systems -- the machines
that generate about 860 million retirement and supplemental income checks
each year -- have been thoroughly screened and won't experience year
2000-related glitches, officials said (see article).
E*Trade Group Inc. said it will spend about $5 million to make sure its
computer systems are Year 2000-compliant. The online brokerage firm has
spent an additional $1.8 million on the problem since the first quarter of its
last fiscal year, according to the company's annual report, filed with the
Securities and Exchange Commission (see article).
Earnings
National Discount Brokers Group Inc. reported a sharp rise in
second-quarter profit. NDB, an online and discount brokerage, said that the
resurgence of the stock market boosted earnings and revenue in the most
recent quarter (see article).
Network Equipment Technologies Inc. said it expects to post earnings for its
fiscal third quarter that are "significantly" below analysts' estimates. The
company blamed weakness in Asian markets, as well as a tendency of
emerging global carriers to lease rather than buy its equipment. Lease
revenue, it said, is generally recognized over several quarters instead of being
counted in full at once (see article).
Premisys Communications Inc. said fiscal second-quarter results fell short of
analysts' expectations. The telecommunications-gear maker also said its
chief executive officer will be out for six months recuperating from a skiing
misadventure (see article).
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