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Pre-Holiday Euphoria: Internet.com's IPODEX Shows Strong Demand

Irony in Healtheon, Value America, and others postponing IPOs is that they may have created a stronger demand for the few Internet stocks that dared step onto Wall Street. Yet Internet.com's IPODEX, which tracks Net stock IPOs, shows that the actual turnaround for Internet IPOs happened the week of September 17. Here's how:

IPODEX registers the sentiment for Internet IPOs in 1998. Overall the barometer was up for the majority of stocks in it from the IPO price. But week to week, after the August correction hit the market, it was a flat-to-down trend. Mid September, however, IPODEX started to stir and post gains of 20% to 25% per week.

Meanwhile, the broad market recovered its August haircut and the overall indicator of the state of Internet stocks, ISDEX, The Internet Stock Index, climbed higher and higher. It's up more than 60% in four weeks. Against that backdrop of bullish sentiment, pending offers from Healtheon and theglobe.com were pulled, creating a vacuum (demand) for Internet IPOs.

First one out into that dry sponge looking for liquidity? EarthWeb (NASDAQ:EWBX), which indy investors snapped up in an orgy of buying its first two days. It's up 395% to $69.25 from the $14 per share offering price November 11.

EWBX's short-lived public life would rank it third of the group in overall percent gain from IPO price, after Inktomi (NASDAQ:INKT) and eBay (NASDAQ:EBAY), two category leaders, Inktomi in wholesale search and network caching software and eBay in personal auctions (which I would call glorified garage sales in the best sense of the meaning).

Let's go to the table:

INTERNET.COM'S Ticker Share price Share price % change % change
IPO INDEX symbol 11/12/98 11/5/98 period from IPO
Inktomi INKT $127.56 $89.75 42.1% 608.7%
eBay EBAY $126.00 $81.19 55.2% 600.0%
Broadcom BRCM $86.63 $84.25 2.8% 260.9%
Broadcast.com BCST $51.00 $49.38 3.3% 183.3%
Verisign VRSN $38.13 $37.25 2.3% 172.3%
GeoCities GCTY $39.88 $33.75 18.1% 134.6%
Exodus EXDS $35.09 $33.50 4.8% 134.0%
DoubleClick DCLK $35.25 $35.25 0.0% 107.4%
Netgravity NETG $15.63 $11.38 37.4% 73.6%
Beyond.com BYND $14.63 $14.88 -1.7% 62.5%
ISS Group ISSX $34.69 $32.75 5.9% 57.7%
Digital River DRIV $13.19 $11.00 19.9% 55.1%
24/7 Media TFSM $18.44 $15.25 20.9% 31.7%
CDnow CDNW $13.63 $8.50 60.3% -14.8%
Cyberian Outpost COOL $15.25 $14.88 2.5% -15.3%
EarthWeb EWBX $69.25 - - 394.6%
TOTAL*   664.97 552.94 20.3% 180.0%
AVERAGE*   44.33 36.86    
* excludes EWBX, not public on Nov 5
IPODEX is a product of Internet.com, (c) 1998 Mecklermedia

We don't count EWBX from November 5, since it wasn't public yet. Also in EarthWeb's favor, Wit Capital, one of the underwriters, reportedly called around and created a ground swell, as did a promotion EarthWeb did in conjunction with people signing up for its ITKnowledge site.

Add to that JPMorgan's eagerness to get one of its first "Internet" IPOs off on a good start and BAM! there it went.

What EWBX did more than anything was highlight the demand for Internet IPOs, hence Web community site theglobe.com stepping up with its offer again, which begins trading today after pricing 3.1 million shares at $9 through lead underwriter Bear Sterns.

Two other Internet firms in the IPO pipeline and perhaps close to going public any day now are directory provider Infospace and buying club community Xoom.

In our view, any three of these deals have better fundamentals or potential than EarthWeb's business model and the fact that barter was booked as revenue, a full 25% of all revenue. Scalability, revenue growth, user numbers and overall reach on the Internet by any one of these three surpasses EarthWeb's, heretofore only known among the Web developer community, its core audience for its ad-driven existence.

With the continued interest in Internet IPOs and stocks, we wanted to highlight some of the key things to look for in an Internet IPO: Business model, market size for its business, competition, management experience, revenue/earnings (or earnings potential given the previous factors), peers in the same group, leadership or pioneering in model, dependence on technology, mindshare/brand awareness, ability to scale to meet market demand, capital needs, overall market and general economic trends.

Oh, and don't forget that one intangible holds weight on its own, perhaps more than any other in some instances: the collective psyche.