CAIS Makes Case For IPO
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Believe it or not, another Internet IPO besides eToys began trading on Thursday.
Most of the focus among Internet stock watchers this week has been on the online retailer of toys and games, and rightly so. It's a high-profile play in a glamour Internet sector. (eToys opened at $78 after pricing 8.3 million shares Wednesday night at $20 each. It is trading on Nasdaq under the symbol ETYS.)
But high-speed access provider CAIS Internet also made its debut Thursday, opening at $24 after being priced Wednesday at $19 a share. The Washington, D.C.-based company is selling 6 million shares on Nasdaq under the CAIS ticker; lead underwriter is Bear Stearns.
CAIS is hoping to raise a fairly ambitious $114 million with the offering. And rightly so, for the business the company is in - Internet connectivity - requires heavy capital up-front to build out an infrastructure.
In other words, you can talk on the phone and surf the Internet without using a second phone line. All you need is a jack supplied by CAIS that gets plugged into your existing line.
That's a compelling notion for millions of Americans who dislike: 1) not being able to talk on the phone while using the Web; 2) being bumped offline by incoming phone calls; 3) the notion of paying hundreds of dollars more a year for an additional phone line.
While CAIS wants the residential customers, it is initially focusing on multiple dwelling units such as apartment buildings and hotels. Through April 16, the company says it has installed OverVoice in more than 1,900 units in 15 apartment buildings and 2,100 guest rooms in eight hotels.
There are bigger deals in the works. CAIS has an agreement with the Hilton hotel chain to install OverVoice in 225 Hilton properties in the U.S.
Hotels, especially those that cater to business travelers, are a potentially lucrative market for a product such as OverVoice. Increasingly hotels must offer better connectivity services to business travelers or risk losing customers.
Being able to provide high-speed Internet access to business travelers who can simultaneously use the phones in their rooms makes for a nice competitive edge. All the more so, if you can avoid the considerable expense of installing T-1 lines.
CAIS, however, faces several major challenges. Like most Internet companies, it is nowhere near a profit and doesn't expect to be anytime soon. The company had a net loss in 1998 of $12.9 million, compared to $3.1 million in '97. It also lost $5 million in the first quarter of this year.
And revenue growth has been sluggish, rising only 16.7% in the past year, from $4.6 million to $5.3 million. Q1 revenue was $1.6 million.
Finally, while its DSL service is a nice hedge, CAIS really is betting its business on the acceptance of OverVoice as a high-speed access solution. It will be competing against several technologies - wireless, fiber optic cable, coaxial cable -- that are more familiar, and sometimes already available, to customers.
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