Record Falls, With Days To Spare

Yet another milestone has been reached in this precedent-shattering year
for Internet IPOs.

The crop of public offerings unleashed Friday enabled June to set a new
monthly record with 29 ‘Net IPOs, topping the 26 that hit the street in
May.

With three trading days left, we should see at least 30 Internet IPOs
this month, though the trend in recent weeks has been toward lighter
action through Thursday, followed by a flurry of Friday offerings. (In
fact, 16 of the 29 Internet IPOs in June have gone out on Fridays.)

And given this week’s heavy docket of expected pricings, it is not
inconceivable that 35 Internet companies will have gone public by the
time June comes to a close — all this despite a demonstrably soft,
overloaded market heading into its traditional summer slowdown.

One IPO slated to price this week comes from Ask Jeeves, a Web search
engine that allows users to ask questions in regular English, rather
than using key words or Boolean logic (words separated by “and” or “or”.)

Based in Berkeley, Calif., the company hopes to raise $30 million in an
offering of 3 million shares to be priced between $9 and $11 each. The
stock will trade under the Nasdaq ticker symbol ASKJ.

This IPO is being touted as one of the week’s most promising by some
analysts, primarily because the underwriter is Morgan Stanley Dean
Witter. But in a market that has generously rewarded infrastructure
plays while greeting many content IPOs with stony indifference, this
strikes me as odd.

Despite having unveiled its service in April 1997, Ask Jeeves had only
$593,000 in revenue in 1998, most of which came from site advertising.
(Though revenues in this year’s first quarter were $1.1 million, up from
about $15,000 in Q1 ’98.) Net loss in ’98 was $4.3 million, growing to
$4.9 million in the recent first quarter.

None of which makes Ask Jeeves stand out one way or another from other
content plays. If anything, the company is, like Netivation.com, barely
past development stage.

For example, the company says it plans to generate revenues through the
“facilitation of electronic commerce” by referring users who ask
shopping questions to certain vendors, some of whom will pay Ask Jeeves.
But it hasn’t yet generated any revenues from this method, which it
calls “relatively new and largely untested.” (Both AltaVista and
GoTo.com are charging vendors for search referrals.)

Ask Jeeves also says it expects to make money by licensing its search
services to corporations. But through Q1, the company had only five
corporate customers, all of whom have just begun to implement the
service on their sites. Again, no track record.

Which leaves advertising dollars as the main fuel for Ask Jeeves’ growth
in the foreseeable future. That too is a tough proposition. Competition
among search service vendors is fierce, and Ask Jeeves doesn’t have the
extras that the full-fledged portals have to attract traffic.

It must instead rely on the attractiveness and effectiveness of its
question-and-answer search format. And while the notion of typing in
questions and getting plain-English answers is enticing, the reality is
that it isn’t suited for many, even most, specific queries.

In other words, while Ask Jeeves offers an interesting alternative to
finding information in cyberspace, it will never be a savvy users’
search workhorse. Bottom line: Lots of curious visitors, lots of churn.

None of which is to say that Ask Jeeves’ stock won’t do well when shares
begin trading. Another search service provider, GoTo.com, closed its
first day of trading on June 18 at $22.38 — or 49% above its $15 price
– and was trading Monday afternoon at $21.38.

It’s just that as a long-term investment proposition, Ask Jeeves leaves too many questions unanswered.


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