Questions Weigh Down Netpliance IPO

Even with powerful IPO accelerants like Linux and a last-minute offer price hike, Internet appliance service provider Netpliance is destined for a modest flight in its ticker debut.

Shares of Netpliance (NPLI) began trading shortly before noon Friday at 24-3/4, only 37.5 percent above the $18 per share offer price set on Thursday, before dropping to 20-3/4 before 1 p.m. Netpliance and lead underwriter Donaldson, Lufkin & Jenrette increased the offer price from the proposed range of $15 to $17 on Thursday, and also boldly increased the number of shares to be sold from 1 million to 8 million.

Netpliance is counting on the $144 million IPO to help jumpstart it from ground zero to the top of the promising Internet appliance service market.

The Austin, Texas-based company has developed a stripped-down version of a PC, targeted primarily toward novice Internet users, which it sells (at a loss) for $99. But Netpliance is positioning itself as a service provider for any number of Internet appliances, and has plans to introduce access for users of hand-held computers and wireless phones.

The company also has cut deals with Walt Disney’s (GO) for content and US WEST for marketing and distribution of its “i-opener” service, for which it charges about $25 per month.

While it’s entirely common for Internet companies with short operating histories to go public, the ink is barely dry on Netpliance’s stationery. The company only began offering its i-opener service last November. Thus revenues for 1999 were a paltry $25,716, against an accumulated deficit of $43.5 million.

Further, Netpliance supports Linux applications, not Windows. That might play well with Linux-crazy investors, but the reality is that it’s still a Windows world, so while newbies may not care, this will scare off many Windows users.

I think investors see an intriguing, but untested (even by Internet standards) business model something Netpliance itself acknowledges in its prospectus. Thus Friday’s fizzle.

From the “I Said Cautious, Not Callous!” Dept.: On Wednesday I wrote that I expected a “cautious reception” for the IPO of home improvement Web site, “closer to that of Digitas (DTAS) (up 23 percent from its Tuesday offer price) than FairMarket (FAIM) (up 185 percent).”

Rather than caution, investors expressed outright skepticism as finished its first day of trading on Thursday at 14 1/8, or 11.7 percent below its offer price of $16 per share, making it the worst ticker debut of the year for a ‘Net stock.

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