Sizzlefest: Internet IPOs Soar and Here Comes More

There’s anecdotal evidence that Wall Street may be starting to understand that the Internet is a major turning point in the evolution of entire industries: the last three Internet stock IPOs we ran through the abacus showed 238% average gain as a group.


ISDEX, Internet Stock Index, is up more than 70% year to date. That may bode well for three Internet public offerings hurling down the water slide that now looks like a fixture on Wall Street through summer to year’s end.


We don’t need to go into Broadcast.com’s record-setting IPO which soared 279% its first day out of the chute. The amazing thing in our book is that Broadcast.com has no real brand recognition. And still a week after going public BCST shares retained most of its run, up 236% from the $18 per share initial public offering price. Of course no retail investor got a piece of that “wholesale-like” price.



Three Amigos: Recent Internet IPOs
































Internet stock

IPO price

Price July 20

% Change

Broadcast.com

$ 18.00

$ 60.50

236%

Inktomi

$ 18.00

$ 69.69

287%

NetGravity

$ 9.00

$ 22.06

145%

TOTAL/WEIGHTED AVERAGE

$ 45.00

$ 152.25

238%


Inktomi (NASDAQ:INKT), software search engine provider to Yahoo! and Microsoft, as well as a network caching software maker, climbed more than 287% from IPO to July 20.


Netgravity (NASDAQ:NETG) came out and stumbled before investors started believing it could be a contender for DoubleClick (NASDAQ:DCLK), even though NetGravity provides ad software. DoubleClick is an ad network, a slightly different animal.


With such strong after-market burners we think the summer and fall could continue to churn out Internet offerings at record levels. The difference between now and 1994 when we first eyed Internet stocks is that now they are front and center, message boards provide people with an easy way to share thoughts, information distribution is wider, and several home runs have been hit in the Net IPO ballpark to drive interest.


On tap in order of best known to least known: GeoCities, Cyberian Outpost and Digital River.


While GeoCities cautiously hasn’t revealed shares offered, target price or pro forma much of anything, we expect it to be over-subscribed to the level of hysteria. If Broadcast.com went ballistic on market madness then GeoCities, a category creator and leader, could break BCST’s record for percent gains.


We think GeoCities could price the works at $575 million market cap with 5 million to 6 million shares offered at north of $25 per share, ending its first day north of $1.5 billion to $2 billion.


Cyberian priced 4 million shares at $14 and Digital River, which has a network of software stores on numerous Web sites, priced 3.2 million shares at $11.












































































































































































ISDEX IPO SPOTLIGHT

Cyberian Outpost

Digital River

GeoCities

Proposed
ticker

COOL

DRIV

GCTY

Does
what?

software/hardware
etailer

software
etailer

websteader

Shares
offered

4.00

3.2

?

Greenshoe

0.60

0.48

?

Target
share price

$
14.00

$
11.00

?

Gross
proceeds

$
58.40

$
40.48

$
72.45

Shares
outstanding

22.02

16.91

?

IPO
market cap

$
308.24

$
186.05

?

Options/warrants

4.18

3.14

?

Fully-diluted
shares (FDS)

26.80

20.53

?

FDS
market cap

$
375.21

$
225.83

?

Working
capital

$
62.43

$
39.89

?

Long-term
debt

$

FDS
enterprise value

$
312.78

$
185.94

?

Latest
full-year revenue

$
22.70

$
2.47

$4.58

Latest
quarter revenue

$
11.56

$
3.48

$2.17

Est.
calendar (CY) 1998 revenue

$
33.33

$
14.25

$
15.00

Latest
quarter (losses)

($4.63)

($3.97)

($2.90)

FDS
enterprise/latest year rev.

13.8

75.2

?

FDS
enterprise/CY1998

9.4

13.0

?

Peer
revenue multiple/CY1998

4.1

17.9

26.4

Employees
(full-time)

87

76

114

Enterprise
value/employee

$
3.60

$
2.45

Latest
quarter revenue/employee

$
0.13

$
0.05

$
0.02

Lead
underwriter

BT
ALEX. BROWN

BT
ALEX. BROWN

GOLDMAN
SACHS


all figures in millions except share price, multiples (c) 1998
Mecklermedia, Internet.com. Click here for more
Internet stock reports


Our analysis puts Cyberian at 9.4x estimated calendar year 1998 revenue vs. rival Egghead.com’s (NASDAQ:EGGS) 4.1x. Digital River, meanwhile, looks like it may be at a discount on revenue multiple basis vs. Software.net (NASDAQ:SWNT), which we forecast could be at 17.9x revenue to Digital River’s 13x.


Both Egghead and Software.net have $500 million market caps or 60% to 160% more than the IPO market caps of Cyberian or Digital River, respectively.


With the IPO market on white hot pitch, however, we expect Cyberian, Digital River and GeoCities to bump the price and shares just before they go. While GeoCities revenue forecast for this year looks thin, we think 1999 and 2000 revenue may be the ones to start the flow.


With its 15 million users GeoCities market cap could exceed Lycos-Tripod (NASDAQ:LCOS), or more than $1 billion its first day, perhaps even $2 billion. Enjoying a top-10 slot in Relevant Knowledge’s monthly surveys helps GeoCities in its value hunt. Consider that if its users were held at $100 each (the average for the top-10 is $121 or $104 without Yahoo!) that implies about a $1.5 billion value for GeoCities. To get more info on any of these IPOs contact the underwriters for each offering shown in the table.


One thing’s for sure so far this summer, the heat is on and the IPO slide looks very wet.










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