F5 Networks, Juniper Defy Gravity

In mid-July we saw that shares of most Internet companies which had
launched IPOs in the previous three months – 45 of 75, or 60%, to be
exact – were trading above their respective first-day closing prices.

That, however, was just at the beginning of the mid-summer swoon which
dragged Internet stocks well into August, and may not be over yet,
despite last week’s mini-rally.

Based on this monthlong slump, I expected the latest after-market
figures, as reflected in internet.com’s IPODEX, to have a
much redder hue to them.

But they don’t. In fact, 47 of the 86 listed in the IPODEX ended trading
Friday above their first-day closing price. That’s 55%, just slightly
off the pace in early July, when the market was hotter, and
substantially better than the 30% (17 of 57 companies) in June, when the
spring slump was in full swing.

Below is a list of the best-performing Internet stocks issued since
June, along with their IPO date (full details are
in IPODEX):

  • F5 Networks (June 4) – 269%
  • HotJobs.com (Aug. 10) – 142%
  • Stamps.com (June 25) – 134%
  • Software.com (June 24) – 126%
  • Juniper Networks (June 25) – 109%
  • Viant (June 18) – 88%
  • Mail.com (June 18) – 83%
  • Digital Island (June 29) – 82%
  • GoTo.com (June 18) – 78%
  • CyberSource (June 24) – 77%

There are two remarkable stories here. One is F5 Networks (FFIV), a vendor of
server load-balancing software. The Seattle-based company’s stock easily
had the best after-market performance of all recent Internet issues
through July 9, trading at $50.75, or 241% above its first-day closing
price of $14.88.

As of Friday, F5 shares were even higher, closing at $54.88. That slight
increase is deceiving, for F5 went on a wild ride between July and
August, closing as high as $71.25 on July 15 before plunging to as low
as $29.88 by Aug. 9. One week later, F5’s shares were at $59, nearly
doubling in a week.

The other fascinating story comes from Juniper Networks, which is now
the only Internet stock trading above $200 per share. Juniper earned its
109% after-market performance through Friday the hard way: The Internet
backbone router vendor had one of the best debuts of 1999, closing on
June 25 at $97.88 after being offered at $34 a share.

It has performed even more impressively since closing on July 9 at
$132.75, cracking the $200 barrier on Aug. 13 and reaching its all-time
high Monday of $225.25.

Obviously both companies are benefiting from the market’s affinity for
infrastructure plays. A Wall Street Journal article last week said that
94 non-retail Internet companies were up about 71% from their offer
prices, compared to a 28.3% average gain for 40 online retailers, based
on a study by Thompson Financial Securities Data.

But Kenneth Heebner, a portfolio manager for Capital Growth Management,
rightly told the Journal that investors are taking a chance because
they’re betting as if they think all infrastructure companies will be
winners.

That’s a risky assumption when you’re talking about a company like
Juniper, which competes directly with the 800-pound gorilla of
networking, Cisco Systems.

For now, though, I’d feel pretty good if I were a Juniper investor. Ijust wouldn’t buy in now.


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