RealTime IT News

High Offer Prices Won't Fly In Low-Altitude Market

The days of the jacked-up offer price for Internet IPOs seem to be over for now, if recent pricings are any indication.

Whereas the past few months have seen numerous companies go for the kill by dramatically raising their offer prices on the eve of the IPO, none of the five Internet companies that went public last week priced shares beyond their respective proposed ranges.

The highest pricing was by Online Resources & Communications, which offered 3.1 million shares at $14 each. The maker of e-commerce systems for financial institutions also had the worst debut of the week, finishing trading on Friday at $14.06, a mere 0.4% increase over its offer price.

Online broker Wit Capital Group, meanwhile, priced its 7.6 million shares at $9 apiece, and closed trading at $14.88 for a week's-best showing of 65% above the offer price.

On average, the five companies (four of which went public on Friday) managed a first-day performance of only 44% above their respective offer prices, well below May's 59%, the lowest monthly average of the year by far. (See the June 1 StockTracker Daily.)

Way back on March 19, women-oriented Web portal iVillage shocked the market by boldly - some say greedily -- pricing shares at $24, double the low figure in its $12-$14 proposed range cited in a Feb. 24 filing with the SEC.

iVillage wasn't the first Internet company this year to price shares well above the original proposed range - pcOrder.com priced at $21 per share on Feb. 26 less than three weeks after an SEC filing indicated it would sell shares between $11 and $13.

But the iVillage pricing, coming as it did at the height of the early-spring Internet IPO frenzy, kicked off a run of $20-plus pricings from a number of companies, including:

March

MiningCo.com (now About.com) -- $25 offer price ($12-$14 initial proposed range) OneMain.com -- $22 ($18-$20) Autobytel.com -- $23 ($16-$18) Critical Path -- $24 ($9-$11)

April

Rhythms NetConnections -- $21 ($15-$17) Value America -- $23 ($15-$17) Usinternetworking -- $21 ($11-$13) Iturf -- $22 ($10-$12) WorldGate Communications -- $21 ($12-$14) Launch Media -- $22 ($12-$14) Marimba -- $20 ($13-$15)

May

Flycast Communications -- $25 ($15-$17) Scient -- $20 ($11-$13) NextCard -- $20 ($14-$16) eToys -- $20 ($10-$12) DLJdirect -- $20 ($18-$20)

This kind of aggressive pricing makes sense in a hot market because it plays into, and builds upon, the investor feeding frenzy. If traders are looking for the next big winner, pricing high may well persuade them that your company is it.

That strategy worked well for iVillage, eToys, Rhythms NetConnections and Marimba, which all placed among the top 10 Internet IPOs so far this year in terms of first-day closing price relative to offer price.

In a down cycle, however, setting a high offer price can scare away newly skeptical investors who are focusing more on value than market momentum. EToys pulled it off when its stock debuted on May 20, but only because it stood head-and-shoulders above other Internet IPOs during that time frame in terms of name recognition.

There are no such marquee companies on the near horizon. So unless the market turns around soon, it is unlikely we will see $20-plus pricingover the next few weeks.


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