Weak Debuts May Thin Bulging Pipeline
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After Wednesday's sobering showing of Internet IPOs, don't be surprised to see a number of companies begin to bail out of plans to go public.
Two of the five Internet companies that launched IPOs Wednesday - Juno Online Services and ZipLink - saw their stocks close the day below their respective offer prices. And a third, EDGAR Online, finished only 6 cents above its $9.50 offer.
Here's some perspective: Up until Wednesday, only two of this year's 66 Internet IPOs closed below their offer prices on the first day of trading - Digital Lava in February and COMPS.COM early this month. Two others, Intelligent Life (May 13) and fashionmall.com (last week), closed even on their first day of trading.
In other words, Wednesday gave us three of the seven worst debuts of the year for Internet IPOs, providing the strongest evidence yet (as if we needed it) that the market for new cyber stock offerings has become saturated.
So far only two Internet companies that registered IPOs this year have altered plans. Online health and medical information company WebMD, which filed in late January, withdrew on the eve of its IPO when it announced a proposed merger with health-care transaction processor Healtheon.
Late last month Internet music retailer musicmaker.com postponed its IPO, also just before shares were slated to begin trading, reportedly because it was negotiating a licensing deal with a major music company.
Both companies made good moves, and not just because the market has been roughing up Internet stocks. The merger gives WebMD an opportunity to be part of the biggest health care Web site geared to medical professionals. It also gives the company a robust partner in Healtheon, whose stock has been among the best-performing this spring.
And musicmaker.com desperately needs licensing rights from big-time music publishers if it is to expand beyond its current meager slate of alt-rock and oldies artists. Unless I've missed something, it's worth noting that the licensing deal cited as the reason for the postponement has yet to materialize, making one wonder if it was a cover story.
Even if it were, musicmaker.com still did the right thing because its IPO was incredibly premature. The company's 1998 revenue of $74,000 isthe lowest I've seen from any company considering going public.
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