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ImproveNet.com Hopes To Build Solid IPO

ImproveNet.com hopes to construct a reputation as the premiere online provider of home improvement information and services.

But to do so, the company must continue to spend millions on brand-building, hence its pending initial public offering of 2.3 million shares of common stock designed to raise $34.5 million. (The current price range for shares, which will trade under the Nasdaq symbol IMPV, is $14 to $16. Lead underwriter is Credit Suisse First Boston.)

The problem is, even if ImproveNet.com continues to pour money into sales and marketing (it spent $25.8 million last year alone), it might be difficult to win over millions of home owners loyal to industry giant Home Depot, which has its own Web site offering visitors tips, news and directions to the company's more than 900 stores.

That's why ImproveNet.com is banking on revenue from its matching service for architects, designers, contractors and other home improvement service providers. ImproveNet.com solicits job leads from homeowners and collects lead fees from all contractors and win fees from those who prevail in the bidding.

These fees amounted to about 55 percent of ImproveNet.com's 1999 revenue of $2.1 million. If you exclude $180,000 in barter ad revenue, service revenue was about 60 percent of the total.

Advertising revenue comes from home improvement product and service providers such as DuPont, General Electric Appliances and Owens Corning.

ImproveNet.com has lost $42 million since its inception in 1996, and warns in its prospectus that it anticipates "incurring losses in the foreseeable future." Another risk to consider: ImproveNet's senior management team has been in place for less than a year.

Companies such as ServiceMagic.com, iCastle, repairnet, OurHouse.com, Handyman Online and Contractor.com also offer online referrals for contractors, but ImproveNet.com's IPO should give it the firepower to successfully compete against them.

However, if Home Depot should expand the scope of its Web site to include matching services, ImproveNet.com's ability to grow into profitability will be tested.

So how will ImproveNet.com's IPO do? I'm expecting a cautious reception by investors, closer to that of Digitas (DTAS) (up 23 percent from its Tuesday offer price) than FairMarket (FAIM) (up 185 percent).


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