An IPO Offer You Can’t Refuse

While buying a home is the American dream, it sure isn’t a fun process.

It’s long and complicated and requires lots of searching. You want to make
sure you get a good price and a great place to live.

Buying a house is typically the biggest financial decision for a family.
In fact, the biggest segment of the real estate industry is the sale of
existing homes, which were five million in 1998 (or $625 billion).

One company that is helping to make the search easier:
Bamboo.com (BAMB)
. It went public last week. The lead underwriter was Prudential Securities.

At Bamboo.com, you get access to 360-degree virtual tours of homes. With
your mouse, you can pan and zoom away. It’s cool stuff.

You don’t need special software or a high-speed modem; rather, you use a
Java-enabled browser.

Bamboo.com makes its money by selling its online video services to real
estate agents, who can use them for marketing. The basic package costs
$99.95.

Bamboo.com also helps promote the virtual tours.

The company has
distribution deals with such real estate hubs as
REALTOR.com,
Homeseekers.com,

Microsoft HomeAdvisor,
Homes.com, and HomeBuilder.

For the first six months of 1999, the company had $536,000 in revenues,
which compares to $39,000 in the same period a year before.

Unfortunately, the cost structure of the business is daunting. After all,
to do a virtual tour, you need to hire people to video the house, process
the images and deliver the tours.

In other words, the business is not very
scalable, and the cost of revenues are prohibitive. For the first six
months of 1999, the costs of videotaping, image processing and delivery
were $228,000, $169,000 and $52,000, respectively.

Basically, I think this is a company that may never be profitable.

So why did the Bamboo.com IPO skyrocket? Basically, the investment bankers
underpriced it so low that it was inevitable the stock would fly.

For example, Bamboo.com originally planned to offer five million shares. This
was cut to four million. Instead of pricing the deal between $8-$10, the
stock came out at $7. In all, the company only raised $24 million.

What likely happened was that, when Bamboo.com went on its road show,
institutional investors were very concerned about the prospects for the
company. So it wanted a deal. A great deal.

Actually, such heavy underpricing is becoming more common.

This is fine for short-term gains, but as for long-term holders of the stock,
such underpricings will likely be bad for the portfolio.


Introducing Internet StockTracker, the new weekly e-mail newsletter from
internet.com Corp. Every Friday internet.com will deliver to your e-mail
in-box the latest performance data on individual Internet companies and
their competitors. Internet StockTracker will deliver to you all the
statistics you need to assess the week’s activity.
Subscribe today and receive the Charter Rate of $157 — a savings of
$70 off the regular subscription price!
e-newsletters

Get the Free Newsletter!

Subscribe to our newsletter.

Subscribe to Daily Tech Insider for top news, trends & analysis

News Around the Web