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Dot, Dot, Dot Com's IPOs Start To Outstrip Demand

A slew of Internet companies filing to go public has tapped a large part of the public's demand for these issues and left the aftermarket for the entire group much more diluted. It happens from about every quarter or six months with too many deals chasing too few dollars. The numbers tell it: internet.com's IPODEX off 11% since April 22, some of the stocks down 48%.

I purposely go back a month on the table to see how the market's rate fear affected the after-market. Also watering down the IPO group is the sheer glut of Internet IPOs in registration. Every company wants to get out an already narrowed window.

The only other bright spot in those shown was Priceline (NASDAQ:PCLN), up 76% on a strong quarterly results and was upgraded by several analysts.

Aside from those two risers the rest of the IPOs shown were off anywhere from 1% to 48% since April 22. Blended they lost 11% on average and a median 18%. Add to that rate increase fears and summer sluggishness and you have a three-part weakened market for IPOs: 1) too many "dot coms" in the pipeline and only a few with differentiation; 2) rate fears and 3) summer slowdowns in tech in general.

Another few factors diluting the IPO market is the handful of secondaries, increased price range and shares offered for IPOs, and public's lack of knowledge about what these companies actually do.

Yet another variable is the extreme volatility in the sector in general, the risk side of the reward scale, thin floats and scores of big and small money looking to buy and sell the same group of stocks.

internet.com / IPO Index

Company Stock IPO share 20-May Percent Change from 22-Apr High % Low %
name Symbol price close change vs. 4/22 IPO % of high vs. IPO vs. IPO
Healtheon HLTH $ 8.00 $ 100.63 97% 1158% -20% 1477% 172%
Priceline.com PCLN $ 16.00 $ 134.38 76% 740% -19% 931% 263%
Allaire ALLR $ 20.00 $ 64.00 -1% 220% -15% 278% 70%
OneMain ONEM $ 22.00 $ 24.00 -15% 9% -49% 113% 5%
About.com BOUT $ 25.00 $ 54.25 -17% 117% -46% 300% 86%
Vignette VIGN $ 19.00 $ 71.00 -17% 274% -36% 488% 96%
Prodigy PRGY $ 15.00 $ 25.09 -19% 373% -50% 238% 33%
MarketWatch MKTW $ 17.00 $ 53.00 -26% 212% -59% 665% 229%
Pacific Internet PCNTF $ 17.00 $ 51.50 -28% 203% -51% 513% 54%
Autoweb AWEB $ 14.00 $ 18.75 -29% 34% -63% 257% 40%
Verticalnet VERT $ 16.00 $ 92.25 -34% 477% -38% 831% 117%
iVillage IVIL $ 24.00 $ 54.00 -43% 125% -58% 442% 168%
WebTrends WEBT $ 13.00 $ 29.63 -48% 128% -65% 546% 69%
  TOTAL 226.00 772.47 -11% 242% -42% 485% 98%
  AVERAGE 17.38 59.42 -11% 242% -42% 485% 98%
  MEDIAN 17.00 54.00 -18% 218% -48% 513% 100%
(c) 1999 internet.com

However, some of the market pioneers have the best chance to rise above the noise. Among which, eToys (NASDAQ:ETYS) screamed out the gate May 20 in its 8.3 million share public offering at $20, opened at $79, peaked at $85 and closed at $76 9/16 per share, up 283%. At close the market value of eToys was north of $7.7 billion. What I like about this company is its leadership in Web-based toy branding and sales.

To fulfill that valuation I think eToys may need to first of all secure its Web-based toy sales leadership vs. Toys 'R Us (which now has a market cap less than ETYS).

If we use Amazon as an example of embrace and extend the I would posit that eToys very well could be a competitor to Disney's kids Web efforts. How? Kids want more than toys they want action, adventure, thrills, chills, to interact with other kids, to be cool, to play video games (which are really 'electronic toys' more than a plastic Star Wars figure sold off the site).

The analogy may be 'MTV for kids' or 'Nickelodeon.' It helps that CEO Edward Lenk came from Disney.

Healtheon (NASDAQ:HLTH) agreed to acquire WebMD, a firm with $75,000 revenue last year, for stock worth more than $9.8 billion. Values be damned captain as HLTH shares soared 25% May 20 to $100 5/8 on the deal, which basically valued WebMD at a peer-like level as HLTH shares nearly doubled since the deal was announced May 19.

Perhaps WebMD is what Healtheon was trying to aim for on the Web. A co-equal. This is the role for Healtheon I predicted in the pre-IPO report on the healthcare networker, one it would have to make when it went public on revenue streams that were mostly non-Internet based.

The forecast then was that Healtheon as a public entity would be able to roll up the healthcare Web industry and so it seems to be doing these few months since IPO.

The absolutely amazing thing to any observer is that WebMD had only $75,000 revenue last year so a multi-billion valuation appears more than a little frothy.

Didn't stop HLTH shares from rocketing to the top of internet.com's IPO index here, up 97% since April 22.


New issue coming June..internet.com presents Hotwatch '99 by Steve Harmon - the stocks to watch in the Internet space, hand-picked by Harmon, whose picks last year's ended 1998 up more than 300%, and who was up 92% through May 20 of this year (as high as 150% at the end of 1Q99)

available as a monthly paid newsletter sent direct to your email box - click here to subscribe now -


Accolades:

"Fresh and provocative" -CBS Marketwatch, who named Steve Harmon one of the top Internet stock analysts and only independent one honored

"I am a huge fan of Steve Harmon's analysis" -Kleiner Perkins' John Doerr