RealTime IT News

SkillSoft IPO Sags Under Too Much Weight

The trading day isn't over yet, but based on opening prices, the big loser among the five IPOs hitting the tickers Tuesday appears to be the only Internet offering in the group.

SkillSoft (SKIL), a New Hampshire company that provides Web-based training courses and software to large organizations and corporations, began trading under the Nasdaq symbol SKIL, offering 3.1 million shares at $14 each. By mid-afternoon Tuesday it was trading at 18 5/16, or 31 percent over the offer price, after hitting only as high as $21 per share.

In contrast, all four non-Internet stocks soared when trading began. Digital subscriber line equipment seller Turnstone Systems was offered at $29, opened at $94 and by mid-afternoon was at $103, a 255 percent increase. Chip maker Quantum Effect Devices offered at $16, opened at 39 1/4 and shot up to 55 1/8, up 245 percent. DNA analysis software vendor Sequenom offered at $26, opened at $71 and continued on to 77 1/2, a 198 percent gain. And Latin American telecom IMPSAT opened at $33 per share after being offered at $17, though IMPT had fallen back to 30 5/8 by mid-afternoon, still an 80 percent gain.

SkillSoft investors looking for the next Internet moonshot after last week's rocket blasts from Neoforma.com (NEOF) (303 percent first-day gain) and Extensity (EXTN) (256 percent) should have looked a little harder at the company's prospectus.

They would have found, for example, that SkillSoft didn't begin generating revenue until last March. In the nine months ended Oct. 31, sales were $2.37 million, of which 29 percent came from one customer. Investors also would have found that SkillSoft had an accumulated deficit through October of $25.1 million.

And they would have learned that several SkillSoft executives and the company's chief financial backer and largest shareholder, Warburg Pincus Ventures, are defendants in a $10 million lawsuit filed by the former employer of the executives, National Education Training Group. The suit alleges breach of contract and trade secret misappropriation.

Companies and executives get sued all the time, and disclosure of such litigation is required by the Securities and Exchange Commission. But the fact that the lawsuit is near the top of the "risk factors" detailed by SkillSoft in its S-1 filing should serve a warning to investors.

Then there's the competition. SkillSoft, with virtually no brand visibility to date, is competing in the training software space with companies such as Fortune 500 members McGraw Hill and Harcourt Brace, as well as SmartForce, which had revenues of $198 million in 1999.

None of which means that SkillSoft can't eventually capture some market share, grow revenues and move toward profitability. There's just little evidence that it can, and an investment in the company would require a leap of faith. Judging from SkillSoft's low-altitude stock debut, not enough investors are ready to make that leap.