E-Mailbag Monday: Ixia, Bluefly, Reverse Splits

What looks good for the IPO market this week?

Reply: A turbulent Nasdaq definitely had an effect on the IPO market last
week. While there were 16 IPOs planned, only five were launched. Although,
it was encouraging to see a strong day on Friday. But in order to
reinvigorate the IPO market, Nasdaq will need to stabilize for at least a
few weeks.

Despite this, there is an IPO this week that may be able to withstand the
turbulence: Ixia.
The company develops sophisticated testing systems for optical and electrical networks.
As these networks experience increasing amounts of traffic, testing becomes
absolutely critical.

Currently, the company has 170 customers, such as Cisco, UUNet and Broadcom.
For the first six months of 2000, revenues were $28.3 million. This
compares to $8.2 million in the same period last year. The company has
profits of about $2.2 million.

The lead underwriter is Merrill Lynch and the price range is $10-$12 (the
company plans to issue 5.5 million shares). The proposed ticker symbol is
XXIA.

Bluefly: A Soros Gadfly?

What’s your opinion of Bluefly, in light of the recent support of George
Soros?

Reply: No question, George Soros is a legendary investor. Yet, in
the past few years, his investment abilities have been lackluster – to say
the least. His fund has experienced outflows – of both cash and portfolio
managers.

True, Soros is investing $5 million in
Bluefly.com , the
discount e-tailer. While this is much needed by the company, I do not think
it is enough. Let’s face it, competing in the e-commerce space requires
huge sums of money. A $5 million investment looks like the proverbial “drop
in the bucket.” What’s more, the company has only about $4 million in the
bank already (as of June 30th).

Reverse Split: Does It Make a Difference?

What is a reverse split?

Reply: Suppose a company’s stock has plunged and is now selling for
50 cents per share. Obviously, this looks bad. What’s more, institutions
may not be allowed to buy the stock, since it is a penny stock. So, the
company may do a reverse split. For example, a 1-for-3 reverse split means
that for every three shares, a stockholder will get one. In other words,
the number of shares outstanding is reduced. This, as a result, should mean
a higher stock price.

With many dot-com stocks selling at distressed levels, there is a likelihood
of more reverse splits. For example, the online drugstore,
PlanetRX , recently
announced a 1-for-8 reverse stock split. This was done in order to keep the
stock listed on Nasdaq.