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Freefalling Market Makes For Shaky Launch Pad

We've all seen the science fiction movies in which a spaceship desperately tries to break free from the grip of a crumbling planet's orbit. Some make it, and some don't.

That's what it's been like for Internet IPOs this week, as worsening stress fractures have inflicted serious damage to any number of high-tech stocks.

Only Internet employee monitoring software vendor Websense.com (WBSN) has managed a successful launch this week, gaining 165 percent above its $18 offer price on Tuesday to finish at 47 3/4.

Not so lucky was music artist Web network ARTISTdirect (ARTD), which also went public on Tuesday, only to crashed and burned by finishing the day 22 percent below the $12 offer price (the poor devils never knew what hit them), giving it the worst Internet stock debut of the year.

Faring only slightly better were South Korean ISP Hanaro Telecom (HANA), which lost 8.5 percent in its Wednesday opening, and consumer broadband access provider Telocity, which barely lifted off, finishing Wednesday with a gain of only 10 percent. Your ears don't even pop at that altitude.

Therefore, it wouldn't be surprising if the remaining handful of Internet companies with IPOs scheduled this week wait until next Monday, and next quarter.

Still, I expect two of the Net plays slated to begin trading this week to get a big liftoff no matter when they launch. Both IPOs are being led by Goldman Sachs - an underwriter with great influence on investors (though no guarantor of success, since it also led the poorly received Hanaro offering).

The larger of the two is ArrowPoint Communications, a maker of "intelligent" Web switches that seeks to raise $143 million in an offering of 5 million shares. That's nearly twice what ArrowPoint had planned to raise; on Tuesday the company jacked up the proposed offer price range to $30-$32 from $15-$17.

That's a sure sign ArrowPoint and its underwriters expect strong demand for the stock, which will trade under the Nasdaq symbol ARPT. It's a reasonable expectation, for ArrowPoint is targeting a market segment that is on the short list of Internet investor favorites - infrastructure and performance. The company's switches act as traffic cops, routing incoming data to optimize content delivery.

With $12.4 million in revenue last year, ArrowPoint trails competitors such as Foundry Networks (FDRY), Alteon WebSystems (ATON) and F5 Networks (FFIV) in market share. But the market for infrastructure and performance software is expected to be huge, and investors have been treating the sector as if there will be many winners.

Even taking into account the higher offer price, I wouldn't be surprised to see ARPT at least triple its value on its first day of trading.

ValueClick, Goldman's other pending IPO, is attacking an entirely different, but equally serious, problem - the fear among Internet advertisers that they're not getting a decent return on their investment.

The company makes advertising service software for small- and medium-sized Web sites. But rather than merely enabling the sites to post banner ads, for which they collect a flat fee from advertisers, ValueClick's software is based on a "cost



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