To: Stephen (128 )
From: stephen karasick
Friday, Feb 5 1999 7:49PM ET
Reply # of 130
Modem Media surges on debut
By Darren Chervitz, CBS MarketWatch
Last Update: 3:24 PM ET Feb 5, 1999
Internet Stocks
NEW YORK (CBS.MW) -- Modem Media Poppe Tyson surged 156
percent above a higher-than-expected $16 offering price on its U.S. stock
market debut Friday as investors continue to pour into Internet-related
new issues.
The Westport, Conn.-based interactive ad agency priced its 2.6 million
shares at $16, above the original $11 to $13 range listed in the
company's earlier IPO filings.
Shares (MMPT) opened for trading at 51 -- the price at which most
investors were able to buy the stock -- and rose as high 55 1/8 before
succumbing to heavy selling. The stock was at 40 after 2 million shares
changed hands.
Pacific Internet (PCNTF), the other
Internet-related new issue of the day, had an even
wilder debut day. Shares of the Singapore-based
Internet service provider opened at 87 7/8, a 417
percent premium, before falling all the way back
down into the low 40s. The stock was at 44 1/2
with bout 4 million shares changing hands. See IPO
Daily Report
More on Modem Media
Modem Media, a spin-off of True North
Communications (TNO), experienced fairly rapid
growth in the first nine months of 1998, with sales
rising 69 percent to $30.1 million. Profits, however,
remain elusive. The company lost $2 million during
that time frame, about even with the year-ago
period.
Both Modem Media and Poppe Tyson attempted
and failed to go public as separate entities. The two
companies merged after True North bought Poppe Tyson's owner, Bozell
Worldwide.
The combined company is one of the clear leaders in the fast-growing,
fragmented and increasingly competitive interactive ad agency industry,
said Mike DeNunzio, chief executive and co-founder of Four Points
Digital, a Chicago-based interactive ad agency.
DeNunzio wrote the interactive ad business plan for the Chicago office of
True North's Foote Cone & Belding before starting Four Points.
Other notable rivals include USWeb/CKS Group (USWB) and
Razorfish, which filed for an IPO in January. For a list of the top 50
interactive ad agencies, click here.
Ben Holmes, analyst at ipoPros in Denver, pointed out that Modem
Media's 1998 sales were about three times the number recorded by
Razorfish. "Basically, these people are at the top of their game right now,"
Holmes said.
Not only would a Modem Media successful market debut be good for
independent folks like Four Points, Razorfish and agency.com (Omnicom
(OMC) has a stake in Razorfish and agency.com), it could also spur other
major traditional ad agencies to spin off their interactive divisions,
DeNunzio said.
A growing industry
Though estimates show that as many as 30 percent of Americans use the
Internet, only about one percent of all U.S. advertising dollars were spent
online in 1997, according to data from the Internet Advertising Bureau
and Zenith Media.
DeNunzio said that will change as the Internet provides richer media
experiences through high-speed access and as marketers become more
savvy about using direct marketing techniques.
"Owning relationships with customers is one of the things that the Internet
affords marketers that really no other medium can provide on a
cost-effective basis," he said.
In a recent research report, Merrill Lynch analyst Lauren Rich Fine said
$2 billion will be spent on online advertising in the year 2000, as opposed
to about $906 million in 1997. Fine wrote that she believes many of the
interactive agencies will be scooped up by the full-service firms.
The company has done projects for 3Com, John Hancock, JC Penney
and Intel. Like many ad agencies, customer concentration is a concern;
AT&T and Citibank accounted for more than 32 percent of Modem
Media's sales during the first nine months of 1998, and the top 10 clients
accounted for more than three-quarters of sales.
"We all have clients that if they were not there the next day would
represent a serious problem," DeNunzio said. "You'll lose clients, but
there's a tremendous opportunity to make them up [with new ones]."
True North relationship
The company often does business with clients on an assignment basis,
meaning short-term contracts that can often be canceled without much
notice.
"While Modem Media is not aware of plans by any of its significant clients
to terminate their use of Modem Media's services, the termination of
Modem Media's business relationship with any of its significant clients ...
could have a material adverse effect on Modem Media's business,
financial condition or results of operations," the company says in the
prospectus.
Modem Media also created the Internetstocks.com Web site for
BancBoston Robertson Stephens Web analyst Keith Benjamin. Robbie
Stephens is the lead manager in charge of the IPO.
After the offering, True North will own about 5.65 million class B
common shares, totaling 53 percent of Modem Media's equity and about
85 percent of the voting power.
True North, whose stock fell 6.4 percent Friday, has a market cap of
$1.3 billion, excluding debt or outstanding options; its stake in Modem
Media is valued at about $270 million.
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The MM's have taken away a ton of stock from impatient investors,,what a shame.
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