A Rough Reception, And a Smooth as Silk Debut

Silknet Software defied a slump in Internet IPO debuts Wednesday by
finishing its first day of trading at $35.13, a healthy 134% increase
over its offer price of $15.

But another Internet offering – a faux Internet company, to be honest –
got hammered, becoming only the second ‘Net IPO in 1999 to close its
opening day below the offer price. (Digital Lava, on Feb. 17, was the

COMPS.COM, which provides commercial real estate transaction information
and market data, went out at $15 per share, only to wind up at $14.25, a
5% drop from its offer price.

Based in San Diego, COMPS.COM is a classic case of a traditional company
tacking a “.com” onto its name to cash in on the hot Internet stock
market. (Note to COMPS.COM: Your timing is a little off.)

The company was begun in 1982 as COMPS Inc. and reincorporated in 1994
as COMPS InfoSystems. It didn’t become a “.com” until January, one month
before registering its IPO. Not exactly a pure play.

Further, more than 90% of its revenue last year came from non-Internet
media such as CD-ROM. My guess is one big reason this offering got
slammed – besides the softening market, of course – is that COMPS.COM is
at least two years behind in transitioning to the ‘Net.

(Perhaps company executives took too much to heart InfoWorld columnist
Robert Metcalfe’s 1995 prediction that that Internet would collapse in
1996 and that “CD-ROMs through Federal Express will emerge as the
information superhighway.”)

One way COMPS.COM resembles a real Internet company is that it’s in the
red. It has an accumulated deficit of $11.6 million.

Net loss for 1998, meanwhile, was $1.66 million, a 6.6% increase over
1997’s net loss of $1.56 million. That doesn’t look too bad when you
consider that revenue grew 18.7% in that same period (from $10.87
million to $12.9 million). But look back further and you see that the
revenue growth rate is slowing: It was 24.8% from 1996 to 1997 and 29.6%
from ’95 to ’96.

Silknet is another story altogether. The company, founded in 1995 and
based in Manchester, N.H., sells Windows-based electronic commerce
software that allows businesses to provide customer self-service and
collect data on customers for itself and its partners.

This kind of product has applications across a wide number of
industries, as reflected by Silknet’s customer list, which includes
3Com, Bank of America, Cigna, Compaq, Microsoft, Office Depot and Sprint

Silknet has built up an accumulated debt of $15.4 million through March
31, but it didn’t begin generating real revenue until 1998, when it had
$3.65 million in sales.

And the company is ramping up fast: Total revenue for the nine-month
period ended March 31 was $9.2 million, more than four times the $2.1
million for the nine-month period ended March 31, 1998.

The contrast between these two offerings is obvious, and on Wednesday
investors made it clear that have greater faith in Silknet’s upside
potential. In the long run, this kind of investor discrimination is healthy for the Internet stock market.

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