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E-Mailbag Monday: Shorting IPOs, After Hours Trading and Akamai

Thanks for the article on changes to the IPO environment. (A late read on my part, but that's what vacations are supposed to be about.)

Quick question: In addition to the quiet period following an IPO (25 days, as you reported), there is also a moratorium on short-selling. Is this also 25 days? I've heard many different numbers.

-- Allen Clark

Reply: There is no equivalent "quiet period" rule for shorting an IPO. However, there is the following limitation. That is, in order to short a stock, there must be stock certificates available to borrow and then sell on the open market. In an IPO, the stock certificates are not delivered for a few days, so it is impossible to short an IPO within the first few days of the offering.

Rolling the Dice After Hours

Hi Tom:

What do you think of after-hours trading? Does it make sense?

Reply: The answer depends on the type of investor you are. If you are a long-term investor, then buying in after-hours is probably not a good idea. So far, there has been little trading volume and thus, you are likely not to get a good price for your stock. Then again, if you are a daytrader, there are definitely opportunities to make money off the volatility. What's more, there are typically many key announcements after the market close (earnings announcements and so) -- which can create even more volatility in after-market trading. But such strategies are really for the professionals.

Those firms that allow after-hours trading include: Datek, Schwab, DLJDirect, TD Waterhouse, E*TRADE , Discover and Dreyfus.

The Next Big IPO

Good call on Sycamore Networks. What is the next big networking stock?

Joe

Reply: Thanks. Like Juniper Networks and Foundry Networks, Sycamore reached an eye-popping valuation on its IPO -- $14.4 billion to be exact. The stock was priced at $38 and reached a high of $270.88, until it closed at $184.75. I wrote about this company in last week's eMailbag.

The company is in the so-called infrastructure space, which has been torrid this year.

So what's the next one? Akamai looks like a worthy successor.

The idea for this company originated with Tim Berners-Lee, who is the inventor of the World Wide Web. He dared his colleagues to find a way to deliver content faster. F. Thomson Leighton took the challenge and spent much time with advanced mathematics to find a better solution.

By February of 1998, he started Akamai and as of April, 1999, the company launched its product, FreeFlow. Here's how it works. A company will designate certain areas of the site for fast downloads -- such as for icons, graphics, videos (called "Akamaized" content). When a page is loaded, the tagged content will be handled by the Akamai servers -- optimizing the content based on geographic proximity, performance and congestion parameters. So far, the results have been impressive. Yahoo!, for example, had a 50 percent increase in performance on its ad banners.

Akamai now has 49 customers, such as VerticalNet, About.com and CNN Interactive.

The company has entered strategic agreements with Cisco ($49 million ) and Microsoft ($15 million investment).

Here are the valuation metrics:

Akamai

AKAM

pro forma IPO

 
   

Shares offered

8.00

Price target/actual

$18.00

Proceeds

$144.00

Shares out

90.4

   

IPO market cap

$1,627.20

less working cap

$166.90

plus LTD

12.1

Enterprise value

$1,460.30

1999 Revenues

$0.40

1999 Losses

$10.00

Annualized rev.

$0.81

   

Akamai

 

Revenue multiple

2014

Rev. multiple enterprise

1807


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