Expect Extensity to Soar

Don’t count on seeing the Internet IPO skies light up in the immediate wake of Monday’s moonshot by Neoforma.com (NEOF), whose stock ended its first day of trading at 52 3/8, or 303 percent above the $13 offer price.

While Neoforma.com’s street reception indicates strong pent-up demand for Internet offerings – it was the first in more than a month – there are only a handful of ‘Net companies on the IPO launch pad this week.

And the one I think has the best shot at equaling Neoforma.com’s debut is Extensity, a maker of Internet-based software for managing employee spending and reducing related administrative costs.

Since last Friday the Emeryville, Calif.-based company has twice upped its price-per-share range, going from the original $8 to $10 range to $16 to $18. Raising the price range so dramatically usually is a sign that the underwriters detect strong pre-IPO demand from investors. Unless, of course, the underwriters actually are trying to stoke market demand. (Lead underwriter in this case is Deutsche Banc Alex. Brown.)

But the demand for Extensity shares should be real enough, for the company’s product line addresses a huge need in corporate America: Managing travel and expense reporting. Extensity’s software also offers the ultimate promise of cutting costs, one of the main selling points of Internet technology to traditional businesses.

The company claims more than 70 customers, including Cisco Systems (CSCO), AT Kearney, Sara Lee and TransCanada PipeLines.

Last week Extensity submitted full financial results for 1999 to the SEC. The numbers show some impressive revenue growth, with sales reaching $6.8 million, a 505% increase over 1998’s total of $1.1 million.

Net loss also increased, though at a far slower pace, with last year’s $23.6 million slightly more than doubling the $11.1 million loss in 1998. Overall, the company’s accumulated debt through last year was $40 million.

Extensity’s gross margin last year was only 27%, and a major drag on that category was the company’s services and maintenance revenue stream. Services and maintenance represented 45 percent of all revenue last year. Unfortunately, Extensity has been running negative margins on its service and maintenance revenues.

Though Extensity is growing quickly and the market for work force management and optimization software is in its early stages, the company is competing with giants, including IBM (IBM), Ariba Inc. (ARBA) and Concur Technologies (CNQR).

So while Extensity faces an uphill struggle in the long run, expect its initial public offering (trading under the NASDAQ symbol EXTN) to quickly take flight.


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