March 14, 1998 . . . . THE TAULLI REPORT
taulli.com
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Brouhaha: On advice of my attorney, I'm not allowed to make any comments regarding my termination from go2net and my $2.5 million vacation to Hawaii (go2net owns Silicon Investor and Stocksite.com). However, I want to thank everyone for the supportive emails I have received this week. It has been awesome.
Also, the Wall Street Journal Interactive Edition wrote a story on the incident: interactive.wsj.com@4.cgi?tomtaulli/text/wsjie/data/SB921164491235716107.djm
IPO Book: My book on IPOs ("Investing in IPOs") is now in-stock at Amazon.com (http://www.amazon.com/exec/obidos/ISBN%3D157660067X/taullireportA/002-6773923-9457861). Ironically enough, the last chapter of my book is about stock options. Here's the conclusion:
"Stock options present many complicated decisions. It makes sense to seek out an attorney and CPA who specialize in stock options. For example, the CPA may have computer software that will run through various simulations, adjusting for taxes, holding periods, growth rates, and your current goals and financial status. An attorney will help with the terms of the options contract and integrate the contract with your estate plan. Seeking such advice can, over the long run, save you money, time and anxiety."
The iVillage Option
Nowadays, to attract employees, it is almost becoming prerequisite to grant options. However, the SEC is getting tougher on how companies account for options. It was once the case that options would - in a sense - represent a great way to compensate employees without taking a hit against earnings.
One company caught in this option bind is iVillage, which is the leading site catered to women. The company, in fact, is expected to go public next week - which means that iVillage options are likely to have very high values.
Three former senior executives of iVillage have filed suit against the company. In fact, former CFO Joanne Hindman claims that iVillage has been cooking the books.
According to a Wired story, Hindman claims that Candice Carpenter (the CEO of iVillage) spent months trying to hire her by saying, "I'm trying to make you rich." When hired, things got ugly. Hindman's first assignment was to fire a founder of Better Health so as to deny her options.
Eventually, though, Hindman was fired - when she refused to continue with Carpenter's accounting practices. In the company's two year history, Hindman was the fifth CFO.
Of the suits, all allege that iVillage's CEO is, well, dictatorial and that they were unfairly cheated out of their options.
I think, with the changes in the options laws, and the high valuations of Internet stocks, such actions may become more and more common.
CMGI Shows People the Money
The perception on Wall Street is that it is bad for Internet companies to make money. The key is to build market penetration and then profits will naturally emerge.
Well, despite this psychology, there are certain Internet companies making money.
One of them is CMGI. And the stock has been red hot.
The company reported second quarter earnings of $14.1 million or 28 cents per share (consensus estimates were for a 22 cents loss), compared to a loss of $5.8 million or 15 cents per share for the same period last year. The earnings were the result of sales in such successful investments as Lycos, Amazon.com and GeoCities. What's more, CMGI has recently filed IPOs for two of its portfolio companies: Silknet (which provides customer service over the Web) and Critical Path (which outsources email for major companies).
Also, CMGI's CEO, David Wetherell, announced that he has resigned from the board of directors of Lycos, because of the recent merger announcement between USA Networks and Lycos. Looks like the deal is hanging by a thread.
Efox.Net - Jumping the IPO Gun
Speaking of making money, pornography seems to be an area where there are Internet profits. Capitalizing on this, a company called Efox.net announced an IPO. The company says it will do the following: "tastefully package heterosexual men's favorite pursuits--ladies, automobiles, sports, and stocks."
However, the Maryland Attorney General stopped the offering, claiming there was "gun-jumping"; that is, he felt the company was hyping the offering before filing the necessary papers with the SEC.
In response, Efox.net filed a prospectus with the SEC.
Wit Capital Uses Its Own Medicine
Wit Capital, the online brokerage firm that provides IPOs to investors on a "first come, first come" basis, announced that it will file for an IPO in the second quarter.
Andrew Klein, the founder of Wit Capital, was the first person to do an IPO using the Internet (it was his beer company called Spring Street Brewing).
The company has been growing quickly and hiring top-notch talent. Last month, Wit Capital hired Jonathan Cohen, a Merrill Lynch Internet analyst.
Klein has always been known as a visionary. For example, he has plans to create his own stock exchange. Should be interesting. . .
Although, there is much competition. E*TRADE, Schwab and DLJ also have programs for individuals to get IPOs at the offering price.
This Week in IPOs
The IPO of the week was Rowe.com. On its first day of trading, the stock was priced at $16 per share and closed at $24 ½. The stock was as high as $35 5/8.
The company issued 3.1 million shares, raising $49.6 million. The underwriters included JP Morgan, CIBC Oppenheimer and Volpe Brown Whelan. The symbol: ROWE.
The company is a business-to-business play, as it helps companies manage the myriad subscriptions for magazines, journals and newspapers.
In 1998, the company had revenues of $19.1 million and a net loss of $7.6 million. This compares to $12.9 million in revenues and $3.1 million in losses in 1997.
On Deck
Perhaps the most intriguing IPO for the upcoming week is iVillage. The company has slated to sell 3.65 million shares between $12 and $14 per share. With the various lawsuits surrounding it, it will be interesting to see how investors react.
Next, there is FlashNet Communications, which is a fast growing Internet Service Provider (ISP). The company will sell 3 million shares between $12 and $14 each.
Finally, there is Multex.com, a company that provides financial information to individuals and institutions. Multex.com has indicated it will sell 3 million shares between $9 to $11 each. Last year, the company had to cancel its offering. However, since then it has added ".com" to its name.
IPO Filings
Here are the Internet-companies that filed to go public this week
1. QuePasa.com: As the name suggests, this is a Spanish-language portal. The IPO calls for issuing 4 million shares at a price range of $10 to $12 each. In all, there are 400 million who speak Spanish, of which 29.6 million are in the US. The founder and CEO, Jeffrey Peterson, is a mere 26 years old. The underwriter is Paradise Valley Securities and the proposed ticker symbol is PASA.
2. Alloy Online: This site focuses on the demographic group of those between the ages of 10 to 24. The underwriters include BancBoston Robertson Stephens, Volpe Brown Whelan, Dain Rauscher Wessesls and Ladenburg Thalmann. The proposed ticker symbol is ALOY.
3. CareerBuilder: This sites helps employers find employees. The underwriters include CS First Boston, BancBoston Robertson Stepehens, Hambrecht & Quist and Friedman, Billings, Ramsey. The proposed ticker symbol is CBDR.
Rumored IPOs
This week saw the following rumors for IPOs:
1. MP3.com: MP3 technology allows for the efficient download of music over the Web. It looks like this company will go public at the end of the year. The MP3.com site gets about 200,000 visitors per day and has a database of over 6,000 artists.
2. SureTrade: Fleet Financial says it is considering taking its subsidiary, SureTrade, public. The online brokerage unit has 250,000 accounts and is expected to be profitable in the first quarter of 1999.
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***ARTICLES THIS WEEK BY TAULLI***
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* "The Ins and Outs of IPO Lock-Ups": Just about every initial public offering has a lock-up provision, which is disclosed in the company's prospectus (titled "Shares Eligible for Future Sale"). As the name implies, the lock-up provision prevents insiders -- such as directors, officers and major shareholders -- from dumping the stock during the IPO. Source: Ziff Davis Interactive Investor (http://www.zdii.com/industry_list.asp?mode=news&doc_id=ZE304268&pic=Y&ticker=)
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***NEWS FROM THE WEB***
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* "Tips of the Trade": Whether you're a pro or just beginning to trade online, be sure to take a look at these tips - the golden rules to trade by. Source: InvestorOutlook.com (http://www.investoroutlook.com/tools.htm).
* "MP3s - Can the Offline Record Labels Win?" The momentum of MP3 is building. Are the major record labels doomed? Find out why sites like MP3.com will revolutionize the music industry. Source: Ragingbull.com (http://www.ragingbull.com/articles/cyberstock/03-13-99/main.shtml).
* "Net Board Members Get the Big Bucks": Directorships have always been cushy; now some online positions are downright lucrative. Source: ZDII (http://www.zdnet.com/zdnn/stories/news/0,4586,2220783,00.html)
* "CMGI Throws Its Weight Around": After announcing quarterly earnings, the Internet incubator's chairman airs plans to take more companies public and form a half-billion-dollar crossover fund. Source: Red Herring (http://www.herring.com/insider/1999/0311/inv-cmgi.html)
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