RealTime IT News

Early MP3.com Investors May Be Singing Sad Tune

So there I was in upstate Maine, enjoying a week away from the madness of the Internet stock and IPO markets, when a bright object soared by in the coastal sky.

It was MP3.com's IPO, which opened Wednesday at $92 a share after 12.3 million shares of MPPP were offered at $28 each.

But no sooner did MP3.com whiz by, it started descending, ending the day at $63.31. Still, that first-day gain of 126% over the offer price is pretty good in anybody's book, and thus MP3.com's debut was the only tech stock news I heard while on vacation last week.

Which shows you the power of hype and publicity, for two other offerings last week - from Engage Technologies and Gadzoox Networks - had better first-day showings than MP3.com, yet I knew nothing about either until I got online back home.

I do, however, think I heard someone who bought the stock in the low $90s say, "Just wait until everyone is using their technology."

And that's the costly punchline, because MP3.com doesn't own any of the MP3 data compression technology from which the company borrowed its domain name. But I bet a lot of the demand that spiked the share price at the opening bell was fueled by a widespread misperception that the company developed the Internet standard for audio downloads.

(And clearly the recent rash of music-oriented Internet IPOs and MP3.com's aggressive pricing -- up from $16-18 to $28 - also helped build a pre-IPO frenzy.)

As the day went on, and news reports about MP3.com's big opening emphasized that the company had no inside track on MP3 technology, formerly enthusiastic investors apparently began backing off. Indeed, the 31% drop from opening price ($92) to closing price ($63.31) was the second-biggest of any Internet IPO in the past two months (topped only by Voyager.net's 49% drop on that same day).

For some MP3.com investors, I suspect, it's already too late. MP3.com was trading Monday as low as $55. As the reality of the company's true business model - attracting ad revenue with a site that allows users to download music from essentially unknown performers - becomes widely known, MPPP shares face a long, hard climb back to the heady heights it reached at its opening bell.

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