Can Internet IPO Market Regain ‘Pop’?

With two quarters down and two to go for the year, it’s clear that Internet
stocks will not match 1999’s performance in either the number of offerings
or the average first-day gains.

The only real question is whether ‘Net IPOs can regain the altitude that
made them the darlings of Wall Street and the financial press for most of
1999 and the first quarter of this year.

The answer, of course, is yes. The IPO market for Internet stocks has blown
hot and cold several times since 1997. Just look at last year. After four
consecutive months of triple-digit average first-day gains (see chart
below), Internet IPOs lost their sizzle. From May through September, the
average first-day performance for ‘Net offerings was well below 100%, and
below 50% in June and August.

However, there are a couple of big differences between 1999 and this year
that make me think it unlikely that we’ll soon again (if ever) see the kind
of “irrational exuberance” that made a moonshot almost a given for ‘Net
IPOs.

First, you could blame the relatively soft ticker debuts during the middle
of last year on oversupply. From May through September last year, there were
145 Internet IPOs, an average of 29 per month. In contrast, the slump that
has dragged down first-day averages since this spring comes at a time when
there have been only 30 ‘Net launches from April through June, or 10 per
month.

Second, while there’s no doubt that too many investors have short memories,
I sense a fundamental change in the mood of the Internet stock market. Many
investors have been chastened, their assumptions about untested business
models having evaporated as quickly as the formerly weighty market
capitalizations of dozens of e-tailers.

Overall, these are changes for the better. Regular investors get only table
scraps during the go-go times, since Wall Street insiders and pals of
underwriters routinely scoop up pre-IPO shares, only to flip them during the
torrid first-day run-up.

Removing the “pop” from Internet IPOs may make them less exciting to follow,
but it also reduces the chances that Main Street investors will be battered
during the inevitable “drop.” To me, that’s a more-than-acceptable
trade-off.

Average First-Day Return (By Month)

10 Best Internet Debuts of 2000

10 Worst Internet Debuts of 2000

Here are the June Internet IPOs, listed by date, with their first-day
performances:

• June 1 – CrossWorlds(CWLD)
  , 1%
• June 13 – take to auction(TTA),
  6%
• June 14 – Rediff.com INDIA LIMITED(REDF)
  , 61%
• June 21 – Handspring(HAND)
  , 35%
• June 22 – ClickSoftware Technologies(CKSW)
  , 0%
• June 27 – click commerce(CKCM)
  , 76%
• June 27 – busybox.com(BUSY)
  , 11%
• June 28 – Genuity(GENU)
  , -14%
• June 29 – Virage(VRGE)
  , 53%
• June 30 – StorageNetworks(STOR)
  , 234%
• June 30 – Netease.com(NTES)
  , -22%