Net Perceptions Prepares for IPO Plunge

I’m glad to see you’re all still here, that you’re not about to let a
little adversity sidetrack you.

Things look a little brighter and sunnier today, don’t they? Internet
stocks rallied nicely Tuesday, only one trading session after the “worst
day ever.”

I’m tempted to warn that we’re not out of the woods yet, but the fact is
there’s not a tree in sight, unless we look far below us, for the
Internet sector is still way up this year.

Still, the rough ride of the past week is giving pause to an
oversaturated Internet IPO market, and that’s good. It forces investors,
underwriters and companies to be more realistic, to re-evaluate.
Companies like Proxicom and Internet Financial Services may have gulped
before going public Tuesday, but go public they did, to first-day closes
of 50% and 57% above their offers prices, respectively. Not exactly
rocket launches, but hardly disasters.

And two other Internet companies, NetPerceptions and Log On America, say
they will go forward with their IPOs, Net Perceptions on Friday and LOA
possibly this week.

I’ve written about LOA before, and believe this is exactly the kind of
offering that can get beaten up by a more discerning IPO market: A small
company (nine full-time employees) with less than $1 million in annual
revenue competing in a sector (one-stop Internet access services) where
giants roam and where size matters.

Net Perceptions, though, could be a different story. The
Minneapolis-based company makes software designed to make advertisers
more confident about how they spend their money on the Web. That’s a
huge potential market, because it addresses one of the largest obstacles
to the Internet’s commercial growth–many advertisers aren’t sure how,
or if, they’re connecting with their target audiences.

The solution, as provided by Net Perceptions, is collaborative filtering
technology, which combines marketing research with sales enticements.

Net Perceptions products build databases of consumer profiles by
enabling Web sites and advertisers to ask Internet shoppers about tastes
and preferences, and by tracking their movements through a particular
site.

Once a profile is developed, the software offers purchase
recommendations and special promotions to individual shoppers. Among Net
Perceptions customers are Amazon.com, barnesandnoble.com, CDnow and
Ticketmaster Online-CitySearch.

Though founded in July 1996, Net Perceptions didn’t introduce three of
its four software products until last year–applications for ad
targeting, e-commerce and call centers. And the call centers software,
unveiled last November, didn’t ship in ’98. Keep that in mind when you
look at the company’s 1,312% annual revenue growth (from $317,000 in
1997 to $4.48 million last year).

While 1998’s revenue was promising, Net Perceptions must build on that
to cut into an accumulated deficit of $10.7 million through last year.

That means market share, and the company appears well-positioned against
competitors such as Andromedia, HNC Software and Personify. A looming
challenge: Microsoft, which has purchased FireFly Network, perhaps the
only collaborative filtering software vendor with better brand
recognition than Net Perceptions.

Bottom line: Net Perceptions has an excellent opportunity to establish a
defensible position in a growing market before Microsoft enters the
fray, and should therefore attract keen interest among investors.
Net Perceptions plans to offer 3.65 million shares at $10-$12 each. Lead
underwriter is BancBoston Robertson Stephens. The company’s Nasdaq ticker symbol will be NETP.


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