RealTime IT News

Hungry Internet Investors

Like a pack of starving dogs being tossed a side of beef, Internet investors pounced all over the IPO of online medical supplies middleman Neoforma.com (NEOF) on Monday, with shares offered at $13 each opening at 40 7/8 before shooting up to 56 1/4 by early afternoon.

That Neoforma.com bills itself as a B2B play certainly added a wildly popular flavor to the offering, but what really drove the opening-day feeding frenzy was acute hunger: A ravenous Internet IPO market hadn't been fed a new ticker in more than a month. The last Net stock debut was on Dec. 21, when Streamedia Communications (SMILU) went public.

However, given Neoforma.com's short operating history, unproven business model and scant revenues, it's possible that investors who got a taste of NEOF at first-day prices may soon be feeling a little queasy, for it will be a real challenge for the company's stock to maintain its initial altitude. (In fact, shares began dropping Monday afternoon as the Nasdaq declined.)

Neoforma.com allows purchasers of medical supplies to buy products online. The company sells items from a number of suppliers and distributors, ranging from expensive medical testing equipment to surgical gloves and cotton swabs. It also has auctions and provides interactive content to healthcare planners and designers.

But Neoforma.com had only $464,000 in revenue in the nine months ended Sept. 30, 1999, and no prior revenue. Most revenue to date comes from transaction fees from sellers using Neoforma.com's AuctionLive service.

The company says it best in the "risk factor" section of its S-1 filing, in which it volunteers, "Because we have only recently introduced our services, it is difficult to evaluate our business and our future prospects."

We can, though, evaluate Neoforma.com's losses. Through Sept. 30, the company ran up a deficit of $30.6 million. Further, Neoforma.com says it expects to continue to "incur substantial operating losses for the foreseeable future."

Neoforma.com is just one of many Web firms competing in the online medical supplies and equipment market. It is not the leader, and the market itself is in the early stages, thus making it premature call any winners. The company admits as much, and pins its hopes and building brand awareness where there is now little.

Maybe it will. Still, the company offers a vague and untested recipe for success.