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IPODEX up 31% Since Oct 15: Fright Now Gone For IPOs?

Halloween came early for Internet IPOs, with some of the more frightening balance sheets staying away from Wall Street's trick or treat festival that debuted in August, spelling a scary stock market in general. But here's the treat part: Internet IPOs are up more than 31% since October 15, with some showing triple-digit rises.

So, if you're checking your bag of candy or wondering which IPOs to knock on the door of, perhaps those still in the pipeline may be worth a taste test, after you examine them thoroughly, of course. Three of the biggest things to look for: 1) can the revenue stream for the firm scale and lead, meet the demand of the market it's in; 2) can the management team in place take it to that point; 3) can they control costs and generate earnings within 2 or 3 years?

The standard-bearers have proven this model, such as Yahoo, Netscape, and even the heavy-personnel CNET. Amazon hasn't proven it yet because it's going all or nothing to be the retail giant.

For the future, as vertical Internet firms emerge, look for those that dominate their segments, quarter-on-quarter revenue growth, real alliances, paths to leverage, and capital access.

Let's take a look at how those already public have done since October 15 and from the IPO price:

IPODEX

INTERNET.COM'S Ticker Share price Share price % change % change
IPO INDEX symbol 10/29/98 10/15/98 period from IPO
eBay EBAY $79.88 $32.63 144.8% 343.8%
24/7 Media TFSM $11.81 $6.75 75.0% -15.6%
GeoCities GCTY $31.38 $18.63 68.5% 84.6%
DoubleClick DCLK $30.00 $18.19 64.9% 76.5%
Digital River DRIV $10.75 $7.44 44.5% 26.5%
Broadcast.com BCST $52.50 $37.00 41.9% 191.7%
Netgravity NETG $9.63 $7.00 37.5% 6.9%
Cyberian Outpost COOL $12.25 $9.00 36.1% -31.9%
ISS Group ISSX $28.00 $21.75 28.7% 27.3%
Exodus EXDS $31.25 $25.88 20.8% 108.3%
Broadcom BRCM $80.19 $70.00 14.6% 234.1%
Verisign VRSN $29.94 $29.13 2.8% 113.8%
Inktomi INKT $79.06 $84.19 -6.1% 339.2%
CDnow CDNW $7.50 $8.50 -11.8% -53.1%
TOTAL   494.13 376.06 31% 65%
AVERAGE   35.29 26.86 31% 65%

So, while the IPO market for Internet stocks has been dry for the past two months, with IPODEX heating up perhaps we'll see some debuts before the year's up.

In the IPODEX, note Digital River's (NASDAQ:DRIV) rise with the tide. It reported a record $5.8 million third-quarter revenue vs. $683k 3Q97. Loss reached $3.9 million vs. $922k loss 3Q97.

As it emerges, we think Digital River's model of creating a affiliate-driven software selling network may very well be the future of software sales.

Providing a turnkey software selling solution looks extremely valuable to us, as a superior method of selling software vs. the kind that Egghead.com (NASDAQ:EGGS) does, all packaged and shipped. We think immediate and now, decentralized e-commerce looks more like a Web way of business than a one-size fits all Web site.

Web hosting service provider Exodus (NASDAQ:EXDS) posted third-quarter $14.5 million revenue, up 320% vs. 3Q97 and more than 44% higher than 2Q98. Exodus provides hosting for such well-known Web services as Lycos (NASDAQ:LCOS). Exodus grew its customer base by 142 to 642 in third quarter.

We see Exodus' net loss as a concern at $17.7 million vs. $7.4 million 3Q97, but believe that its' build out investment requires capital commitments probably for the next 18 months. We want to see net income after that and think that outsourcing the hosting equation could be huge.

That's if the cable companies don't try and monopolize the Internet if it becomes popular for customers who want it on high-speed cable wires. Cable firms may treat Internet access, content, hosting, e-mail, search and everything related to the open Internet as we know it as "cable programming."

If that happens then it starts to look a lot like the old interactive TV game that failed, only with a new name: cable Internet. And firms providing ANY service or content may be asked to pay the pied piper at TCI, @Home, Time Warner, Cox, Cablevision, etc. Surest way to stifle global growth of the medium, centralize the pipes.

Verisign (NASDAQ:VRSN), once the darling of Internet IPOs, lost some favor (and flavor) with a meager 2.8% climb since October 15, although its up more than 100% from IPO price in February this year. It posted third-quarter revenue of $10.5 million, up 174% vs. 3Q97. Net loss was $4.2 million before acquisition-related charges.

CDnow (NASDAQ:CDNW) made a $111 million stock bid for rival N2K (NASDAQ:NTKI) October 23, that would create the world's largest Internet music seller. The move comes none too soon in our opinion. Amazon.com (NASDAQ:AMZN) generated $14.4 million music vs. CDnow's $13.9 million and N2K's $10.5 million. That's the reason CDnow and N2K have agreed to merge, combined sales would be $24 million, well beyond Amazon's music sales.

As Halloween gives way to the more buying and selling holiday seasons of December, we'll be looking for any reaction in e-tail stocks and those that match buyers and sellers, fulfill the shopping demands of those that want the ease of use and instant discount buying power of the Internet. More on that as the bells start to jingle.