The Doctor Is Looking Healthy
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Will it take a doctor to revive the stricken Internet IPO market?
Probably not, but celebrity-branded health information Web site drkoop.com did its best Tuesday to reverse the trend of declining first-day gains for Internet IPOs, closing trading at $16.44, an 83% increase over its $9 offer price.
While hardly reminiscent of the triple-digit debuts that were routine this year before the mid-April downturn, drkoop.com's was the best debut of the 16 Internet IPOs that have hit the market since eToys - the last real rocket blast - went out on May 20.
The company continued to build on its momentum Wednesday morning, when it opened at $17.63 and was trading as high as $20.25, or 125% above the offer price.
In a March column, I called drkoop.com the Internet branding play of all time due to its reliance on the name of popular former Surgeon General C. Everett Koop, who owns 7% of the company.
In a world where branding is all-important, the calming, paternal visage of board chairman Dr. Koop is a huge asset. And investors will need calming because in terms of revenues, the company is just starting to build its business in the face of deep dept.
It launched commercial operations last November, recording a mere $43,000 in revenue in 1998. That figure grew to $404,000 in the first quarter of this year, but net loss also increased in Q1, reaching $4.3 million, close to half the $9.1 million net loss recorded in 1998. Accumulated debt through March 31 is $23.9 million.
The site relies on a mix of advertising, subscription and e-commerce transaction revenues drawn from advertisers, vendors, and health care organizations. The key to driving revenue, though, is traffic, and if drkoop.com's estimates are to be believed, growth here has been impressive.
When it originally filed to go public in early March, the company reported 2.6 million unique users through February, including 83,000 registered users. Since that time those numbers have jumped to 6 million unique users and 280,000 registered users, according to amended SEC filings.
That's certainly heading in the right direction, and a deal struck in April with Infoseek and Disney under which drkoop.com will be the exclusive provider of health and related content on three Go Network Web sites should accelerate traffic growth.
The downside of that three-year arrangement is more debt. Drkoop.com will pay Infoseek and Disney's Buena Vista subsidiary $57.9 million.
In a period where investors are turning a cold eye toward concept plays, drkoop.com has received a relatively warm welcome. But the company needs to demonstrate sizable revenue growth in the next two or three quartersif it expects to maintain investor confidence.
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