The magic 40% number mentioned!: Stop the Dot-Com Presses! Not All Internet IPOs Soar
By SUSAN PULLIAM and DUNSTAN PRIAL
Staff Reporters of THE WALL STREET JOURNAL
A strange thing happened with an Internet stock: A dot-com company
came public and went "thud."
Comps.com, a San Diego online real-estate firm, is just the sort of
company that only a couple of weeks ago probably would have been
embraced by online investors. But Wednesday was a different story.
After the company issued shares at
15, it rose briefly to 15 1/8 and then
fell to a low of 13, before recovering
somewhat to end the day at 14 1/4.
It is only the second of about 50
Internet IPOs that have fizzled since
last July. Digital Lava, which sold
shares on Feb. 17 at 7 1/2, closed
that day at 6 9/16, but has since
risen, closing Wednesday at 9 3/4,
up 1 1/2.
Two others that went public
Wednesday fared better. Silknet Software, after getting off to a rocky
start, rose 20 1/8 to close at 35 1/8, while NorthPoint Communications
rose 16 1/4 to 40 1/4.
Indeed, the recent reception to Internet newcomers hasn't been exactly
hospitable, considering that the typical Internet IPO has in recent months
been followed by a dizzying first-day run-up of 135% on average, and
several times that in some cases. In the most dazzling example,
MarketWatch.com, which sold shares in an IPO on Jan. 15, jumped
474% in its first day of trading, rising to 97 1/2 from 17.
What does it all mean? "I think we've reached the saturation point," says
Vincent Slavin, who tracks IPOs for Cantor Fitzgerald. "You can see the
deals weakening. In the past week and a half, the offerings haven't been
living up to the unrealistic expectations" of investors, who are now
disappointed if an IPO fails to double or triple in value.
Indeed, the euphoria for new Internet stocks appeared to begin dissipating
a bit last week, after a deal from Launch Media, an online provider of
music information, failed to live up to expectations. The Santa Monica,
Calif., company went public April 23 at 22 a share, closed up 29% on the
first day, but has since dropped back to 22. The slump extended into this
week, when deals from Flycast Communications and MapQuest.com on
Tuesday also failed to generate megagains. Flycast, an Internet
advertising-services firm, came public at 25, had a first-day gain of 19%,
and then rose 1/8 Wednesday to 29 7/8. MapQuest.com, which provides
online maps and traveling directions, had a 49% first-day gain from its
offering price of 15, then dropped 1/16 Wednesday to close at 22 5/16.
The comparatively lukewarm receptions are even more noteworthy against
a backdrop of continued weakness for established Internet shares. After
taking a big plunge in mid-April, many recovered for a while, only to
swoon again starting last week when investors took strong earnings results
from such leaders as Amazon.com as a good excuse to sell Internet
shares. Though it rose 3 1/2 Wednesday to close at 146 1/2,
Amazon.com still is down sharply from 221 on April 27. Yahoo!, up 2
1/16 Wednesday to 161 5/16, is still well below its recent peak of 197
1/2, while eBay closed at 186 13/16, up 5 9/16 Wednesday, still well
below 234 on April 27.
Not to worry, say some Internet analysts. Internet stocks have "done this
in the past-taken a breather after earnings season," says Bill Burnham, an
Internet analyst with Credit Suisse First Boston. "People are being more
discriminate and pocketing the money they made." Moreover, Internet
stocks as a group are still up sharply so far this year.
The Comps.com deal had at least one other factor working against it,
according to Mr. Slavin. It was underwritten by Volpe Brown Whelan, a
smaller firm that isn't nearly as well-known for its underwriting as Goldman
Sachs and Merrill Lynch, he notes. Volpe Brown didn't return calls
seeking comment.
The persistent pall over the Internet group has some market pros worrying.
Keith Mullins, a growth-stock analyst at Salomon Smith Barney, says the
slide in Internet shares is a more ominous signal. "We are at a very
dangerous intersection, and I think Internet stocks could go down 30% to 40% from here," he says. "I think that the recent rise in Internet stocks has
been a reflection of capitulation by institutional fund managers who can't
justify the valuations of Internet stocks but are being killed by their
[performance] benchmarks."
Because these money managers weren't enamored with Internet stocks in
the first place, he says, they may have even more reason to bail out of such
stocks if prices continue to weaken, which could push the shares down
further.
Adding to the relative gloom is the fact that online chatter among Internet
investors and day traders -- who trade in and out of stocks rapidly, often
using online trading services -- has taken a more serious tone lately. There
has been a noticeable increase in uncharacteristically pointed questions to
moderators of Internet chat rooms who suggested buying some of the
Internet fliers in the first place.
At 11:30 a.m. EDT Wednesday, with shares of AboveNet
Communications trading around 70 -- down sharply from its mid-April
high of 151 and down nearly 14 points from its high Wednesday -- one
chatroom participant posted the message: "I'm going to have to fast for
three months to cover my loss" in the stock. The writer,
undergraduate-college student David Suryadinata, 29 years old, later
explained that he has been using $10,000 in money set aside for tuition and
rent to day trade, and had lost $3,000 of funds on AboveNet, which he
bought at 90 a share. "I'm thinking of quitting" online investing, he said. By
the end of the day, however, the stock recovered and closed up 3 3/4 to
83.
Other Market Activity
Small-capitalization stocks were moderately higher, somewhat
underperforming the broad market and blue-chip stocks.
The Russell 2000 index of
small-capitalization stocks rose
1.68, or 0.39%, to 434.27, after
being down as much as 6.55, and
the Nasdaq Composite Index, at
2534.45, gained 49.33, or 1.99%,
having fallen as much as 54.47.
Shares of SPSS surged 4 1/4, or
30%, to 18 1/2. The Chicago
software company posted
first-quarter net income of 35 cents
a diluted share, compared with 34 cents a year earlier and in line with Wall
Street's expectations, according to First Call.
Safety Components, a Costa Mesa, Calif., maker of automotive air bags,
shed 1, or 16%, to 5 1/8. The company expects to post a fourth-quarter
loss, but a profitable fiscal 2000. The company also agreed to end a deal
in which Brera Capital Partners would have acquired $28 million of the
company's preferred shares. The stock hit a 52-week low of 4 1/2
intraday.
Modem Media Poppe Tyson came in with first-quarter operating income
of one cent a share, compared with four cents a year ago. Modem Media
said it expects to maintain break-even to marginally positive per-share
earnings, excluding goodwill amortization, for the rest of 1999. Shares of
the Westport, Conn., interactive advertising agency dropped 5 7/8, or
16%, to 29 7/8.
Alternative Living Services plunged 10 1/8, or 46%, to 11 7/8 on the
American Stock Exchange. The company earned 28 cents a share from
operations in the first quarter, compared with 16 cents a year ago, but
three cents shy of expectations. The health-care service provider also said
it sees 1999 and 2000 net income below views, and several brokerage
firms lowered their investment ratings on the stock. Alternative Living is
based in Brookfield, Wis.
Shares of Egghead.com added 1 3/16, or 8.8%, to 14 11/16; the
computer reseller late Tuesday posted a fourth-quarter loss of 50 cents a
share, which was six cents better than expectations.
Heartport shares fell 15/16, or 17%, to 4 7/16. A Wall Street Journal
article reported Wednesday that the company in the past promoted a
"minimally invasive" heart-surgery operation that Stanford University
doctors developed, but now at least half of the 500 surgeons trained in the
procedure have abandoned it, and the Food and Drug Administration is
looking into the matter. Heartport is a Redwood City, Calif.,
cardiovascular-device company.
Pride International, a Houston drilling company, fell 1 1/8, or 9.4%, to 10
13/16 on the New York Stock Exchange; it posted a loss from operations
of 21 cents a share for the first quarter, compared with net income of 40
cents a year ago. Wall Street had expected Pride to earn four cents in the
period.
Shares of Magellan Health Services rallied 1 9/16, or 31%, to 6 11/16 on
the Big Board. Magellan reported adjusted earnings of 21 cents a share in
the second quarter, meeting Wall Street's estimates. Revenue grew to
$497.3 million from $371 million at the Atlanta behavioral-health
company.
Shares of Interplay Entertainment, an Irvine, Calif., software company, fell
13/32, or 17%, to 2 1/32, after it posted late Tuesday a first-quarter loss
of 44 cents a share, compared with net income of 20 cents a year earlier.
AMF Bowling shares improved 1 7/16, or 22%, to 7 15/16 on the Big
Board, as the Richmond, Va., company began a recapitalization that
includes a rights offering to raise about $140 million and a tender for
discounted convertible zero-coupon debentures. AMF also posted a
first-quarter loss of 31 cents a share, compared with one cent a year ago. |
