Fireworks Come Early for Internet IPOs

Here’s a question to submit to Web search service Ask Jeeves: What
happened to the era of the wised-up Internet investor?

As is the case with many queries posed to Ask Jeeves, don’t expect a
satisfying answer. You sure won’t get one from me; I’m as puzzled as
anyone as to why so many investors gladly paid $60 a share or more
Thursday on Ask Jeeves’ first day of trading.

The Berkeley, Calif., company logged the third-best day ever for an
Internet IPO, trailing only theglobe.com and MarketWatch.com. After
offering $3 million shares at $14 each, Ask Jeeves saw its shares rise
as high as $77.81 before closing at $64.94, a 364% gain in just one day.

Supposedly the mid-April market corrections had sobered Internet
investors whose feverish desire to cash in on the cyberspace craze had
driven share prices of dozens of ‘Net companies to absurd heights.

With Internet stocks dropping drastically this spring, and Internet IPOs
being greeted with far more skepticism, it’s hard to believe that so
many investors would fall for hype about a company with an embryonic
economic model, early-stage technology and modest revenues.

But they did. And the frenzy continued on Friday, as ASKJ shares rose to
nearly $70 in early trading. To anyone selling ASKJ shares at these
prices, congratulations, you’re making a killing. To anyone buying,
remember that there’s little but momentum behind this stock, and that
will run out. When it does, the price will fall fast.

Ask Jeeves’ ticker debut overshadowed another sizzling IPO from a
company with far better long-term prospects, in my view.

Business-to-business e-commerce player Commerce One offered 3.3 million
shares at $21 on Thursday. After opening at $66, CMRC shares finished at
$61, 190% above the offer price. The stock continued to trade in the
$60s through Friday morning.

Commerce One, based in Walnut Creek, Calif., offers software and
services that enable buyers and sellers of business goods and services
to conduct transactions over the Internet. In other words, it’s an
e-commerce infrastructure player, competing with large vendors such as
Microsoft, IBM and SAP and start-ups such as Ariba (which had its own
moonshot last week).

Fast company, but there’s plenty of room for niche players in the
e-commerce software market, which is forecast by many analysts to be one
of the fastest-growing Internet segments.

Commerce One needs to pick up the pace, though. Revenues in 1998 were
$2.56 million, only 47% above the ’97 figure. Latest first-quarter
revenue of $2.1 million indicates the company is gaining steam. And
though Q1 losses nearly tripled to $12 million over Q1 ’98, the Q1 net
loss per share of $2.64 is well below the $8.21 per share net loss for all of 1998.

Look for Commerce One to emerge on the short list of successful
start-ups in this space.

Have a good Fourth of July holiday.


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