RealTime IT News

Razorfish Hopes Hip Equals Hot IPO

You've got to give Razorfish credit for thinking big. The Silicon Alley company, which is expected to go public the week of April 12, is attempting to position itself as nothing less than the one-stop provider for any and all digital technology service needs.

That's a lot of territory for a company to stake a claim to, but Razorfish tries, promising high-end Internet customers a range of services - consultation, design, implementation and management - for e-commerce, Web publishing, bandwidth solutions (including wireless) and intranets/extranets.

Like competitors iXL, AGENCY.COM and USWeb/CKS, Razorfish has built this array of offerings through acquisitions of smaller Internet services shops.

Of course, the "grow or die" game takes money, hence Razorfish's IPO, which the company hopes will raise at least $30 million through the sale of 3 million shares priced at $10-$12 each.

Given the bold $20-plus pricings of recent IPOs from iVillage, MiningCo.com, OneMain.com, Autobytel.com (late last Friday) and Critical Path (today), don't be surprised to see Razorfish double that offer price. The Internet IPO market is red-hot, and Razorfish has established a certain hip cachet in its market that could translate into trading fever.

While hip is good, profitable is better, and Razorfish lost $343,000 last year, after eking out a $300,000 profit in '97. Basically that's a wash; nothing to brag about, but not bad compared to the red-ink bath in which most Internet companies find themselves swimming.

More promising is Razorfish's revenue growth. Founded in January 1995, the company's annual revenues have gone from $312,000 that year to $1.2 million in '96, $3.6 million in '97 and $13.8 million in '98. That translates into consecutive annual growth rates of 290%, 200% and 283%, respectively.

Razorfish's growth should continue impressively in the wake of the company's purchase in January of Spray, a Swedish Internet services firm that generated $15.4 million in revenues itself in '98. The acquisition involved a stock deal that will give the former owners of Spray 32.8 percent of Razorfish's stock after the IPO. Communicade, a subsidiary of Omnicom Group, will own 33 percent of shares.

There's a potential downside to Razorfish's rapid growth, however. The company has a relatively young management team - CEO and co-founder Jeffrey Dachis is 32 and has a degree in dance and dramatic literature. That can be especially dangerous to a company with an acquisitions-based strategy resulting in hyper-fast growth. (Though it should be noted that Dachis has run Razorfish for four full years now, and is thus an Internet industry veteran.)

Last year alone, Razorfish bought five companies. It now has about 400 employees in eight locations around the world. That's a huge management and integration challenge, and the company intends to use some of the IPO proceeds to expand its human resources department.

Razorfish has a lot of momentum, good brand awareness and is playing in an expanding, multi-billion market - Internet services - that is completely up for grabs. That combination makes Razorfish an enticing investment prospect. But with questions about growth management, it's an investment that bears close watching over time.

Razorfish will trade on Nasdaq under the ticker symbol "RAZF". Underwriters are Credit Suisse First Boston, BancBoston Robertson Stephens, BT Alex. Brown and Lehman Brothers.