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Can Internet IPO Market Regain 'Pop'?

With two quarters down and two to go for the year, it's clear that Internet stocks will not match 1999's performance in either the number of offerings or the average first-day gains.

The only real question is whether 'Net IPOs can regain the altitude that made them the darlings of Wall Street and the financial press for most of 1999 and the first quarter of this year.

The answer, of course, is yes. The IPO market for Internet stocks has blown hot and cold several times since 1997. Just look at last year. After four consecutive months of triple-digit average first-day gains (see chart below), Internet IPOs lost their sizzle. From May through September, the average first-day performance for 'Net offerings was well below 100%, and below 50% in June and August.

However, there are a couple of big differences between 1999 and this year that make me think it unlikely that we'll soon again (if ever) see the kind of "irrational exuberance" that made a moonshot almost a given for 'Net IPOs.

First, you could blame the relatively soft ticker debuts during the middle of last year on oversupply. From May through September last year, there were 145 Internet IPOs, an average of 29 per month. In contrast, the slump that has dragged down first-day averages since this spring comes at a time when there have been only 30 'Net launches from April through June, or 10 per month.

Second, while there's no doubt that too many investors have short memories, I sense a fundamental change in the mood of the Internet stock market. Many investors have been chastened, their assumptions about untested business models having evaporated as quickly as the formerly weighty market capitalizations of dozens of e-tailers.

Overall, these are changes for the better. Regular investors get only table scraps during the go-go times, since Wall Street insiders and pals of underwriters routinely scoop up pre-IPO shares, only to flip them during the torrid first-day run-up.

Removing the "pop" from Internet IPOs may make them less exciting to follow, but it also reduces the chances that Main Street investors will be battered during the inevitable "drop." To me, that's a more-than-acceptable trade-off.

Month This year 1999
January 5 4
February 2711
March 2713
April 1317
May 626
June 1132
Total 89 103

Average First-Day Return (By Month)

Month This Year 1999
January 160% 241%
February 126% 122%
March 99% 134%
April 31% 116%
May 38% 59%
June 41% 48%

10 Best Internet Debuts of 2000



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Company IPO Date Gain
webMethods Feb. 11 508%
Crayfish March 8 414%
Selectica March 10 371%
FirePond Feb. 4 356%
Neoforma.com Jan. 24 303%
Extensity Jan. 27 256%
ArrowPoint March 31 248%
StorageNetworks June 30 234%
GigaMedia Feb. 17 226%
net.Genesis Feb. 29 216%