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RealTime IT News

An IPO Offer You Can't Refuse

While buying a home is the American dream, it sure isn't a fun process.

It's long and complicated and requires lots of searching. You want to make sure you get a good price and a great place to live.

Buying a house is typically the biggest financial decision for a family. In fact, the biggest segment of the real estate industry is the sale of existing homes, which were five million in 1998 (or $625 billion).

One company that is helping to make the search easier: Bamboo.com (BAMB) . It went public last week. The lead underwriter was Prudential Securities.

At Bamboo.com, you get access to 360-degree virtual tours of homes. With your mouse, you can pan and zoom away. It's cool stuff.

You don't need special software or a high-speed modem; rather, you use a Java-enabled browser.

Bamboo.com makes its money by selling its online video services to real estate agents, who can use them for marketing. The basic package costs $99.95.

Bamboo.com also helps promote the virtual tours.

The company has distribution deals with such real estate hubs as REALTOR.com, Homeseekers.com,

Microsoft HomeAdvisor, Homes.com, and HomeBuilder.

For the first six months of 1999, the company had $536,000 in revenues, which compares to $39,000 in the same period a year before.

Unfortunately, the cost structure of the business is daunting. After all, to do a virtual tour, you need to hire people to video the house, process the images and deliver the tours.

In other words, the business is not very scalable, and the cost of revenues are prohibitive. For the first six months of 1999, the costs of videotaping, image processing and delivery were $228,000, $169,000 and $52,000, respectively.

Basically, I think this is a company that may never be profitable.

So why did the Bamboo.com IPO skyrocket? Basically, the investment bankers underpriced it so low that it was inevitable the stock would fly.

For example, Bamboo.com originally planned to offer five million shares. This was cut to four million. Instead of pricing the deal between $8-$10, the stock came out at $7. In all, the company only raised $24 million.

What likely happened was that, when Bamboo.com went on its road show, institutional investors were very concerned about the prospects for the company. So it wanted a deal. A great deal.

Actually, such heavy underpricing is becoming more common.

This is fine for short-term gains, but as for long-term holders of the stock, such underpricings will likely be bad for the portfolio.


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