Net Perceptions Prepares for IPO Plunge
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I'm glad to see you're all still here, that you're not about to let a little adversity sidetrack you.
Things look a little brighter and sunnier today, don't they? Internet stocks rallied nicely Tuesday, only one trading session after the "worst day ever."
I'm tempted to warn that we're not out of the woods yet, but the fact is there's not a tree in sight, unless we look far below us, for the Internet sector is still way up this year.
Still, the rough ride of the past week is giving pause to an oversaturated Internet IPO market, and that's good. It forces investors, underwriters and companies to be more realistic, to re-evaluate. Companies like Proxicom and Internet Financial Services may have gulped before going public Tuesday, but go public they did, to first-day closes of 50% and 57% above their offers prices, respectively. Not exactly rocket launches, but hardly disasters.
I've written about LOA before, and believe this is exactly the kind of offering that can get beaten up by a more discerning IPO market: A small company (nine full-time employees) with less than $1 million in annual revenue competing in a sector (one-stop Internet access services) where giants roam and where size matters.
Net Perceptions, though, could be a different story. The Minneapolis-based company makes software designed to make advertisers more confident about how they spend their money on the Web. That's a huge potential market, because it addresses one of the largest obstacles to the Internet's commercial growth--many advertisers aren't sure how, or if, they're connecting with their target audiences.
The solution, as provided by Net Perceptions, is collaborative filtering technology, which combines marketing research with sales enticements.
Net Perceptions products build databases of consumer profiles by enabling Web sites and advertisers to ask Internet shoppers about tastes and preferences, and by tracking their movements through a particular site.
Once a profile is developed, the software offers purchase recommendations and special promotions to individual shoppers. Among Net Perceptions customers are Amazon.com, barnesandnoble.com, CDnow and Ticketmaster Online-CitySearch.
Though founded in July 1996, Net Perceptions didn't introduce three of its four software products until last year--applications for ad targeting, e-commerce and call centers. And the call centers software, unveiled last November, didn't ship in '98. Keep that in mind when you look at the company's 1,312% annual revenue growth (from $317,000 in 1997 to $4.48 million last year).
While 1998's revenue was promising, Net Perceptions must build on that to cut into an accumulated deficit of $10.7 million through last year.
That means market share, and the company appears well-positioned against competitors such as Andromedia, HNC Software and Personify. A looming challenge: Microsoft, which has purchased FireFly Network, perhaps the only collaborative filtering software vendor with better brand recognition than Net Perceptions.
Bottom line: Net Perceptions has an excellent opportunity to establish a defensible position in a growing market before Microsoft enters the fray, and should therefore attract keen interest among investors. Net Perceptions plans to offer 3.65 million shares at $10-$12 each. Lead underwriter is BancBoston Robertson Stephens. The company's Nasdaq ticker symbol will be NETP.
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