The Full-Monty? Internet IPOs Go All the Way

Just as 1998 began to look like the year Internet initial public stock
offers were waning, a heated up after-market has turned Wall Street and the
Web into the hottest show of the season. Our snapshot of three of the IPOs
shows them up an average 228% from offer price and now trading at an
estimated 27x 1998 revenues. Considerable compared to the 9x they came
public at.


Leading the pack is broadband chipmaker Broadcom (NASDAQ:BRCM) which finds
itself in the center of a cable industry clamoring for its chips to dip
into the burgeoning cable Internet access market. Broadcom’s silicon sits
in the set-top boxes that are more and more looking like precursors to
home-entertainment PCs.


Our hunch now is these boxes may be the gateway to an array of broadband
services riding the Internet protocol including video, telephony and file
sharing. If there’s 67 million cable households in the U.S. that’s a
potential larger market than PCs.


Broadcom’s first-quarter revenue blew away estimates–it generated more
revenue for the three months ending March 31 than all of 1997. Earnings
too: $0.19 cents per share. BRCM jumped from a $450 million IPO to more
than $2 billion in market cap. Is this the new Intel?


Check the handy stat box:



Internet IPOs Are Fever White Hot, Up Average
228%














































































































































VeriSign

ISS Group

Broadcom

VRSN

ISSX

BRCM

AVERAGE

Offering

3.00

3.00

3.50

3.17

Greenshoe

0.45

0.45

0.53

0.48

Total offer

3.45

3.45

4.03

3.64

IPO offering price

$ 14.00

$ 22.00

$ 11.00

$ 15.67

IPO gross proceeds

$ 42.00

$ 75.90

$ 38.50

$ 52.13

Shares out pro forma

19.59

13.97

41.28

24.95

IPO market capitalization

$ 274.32

$ 307.30

$ 454.07

$ 345.23

Share price May 4

$ 40.13

$ 47.63

$ 52.88

$ 46.88

Percent change from IPO price

187%

116%

381%

228%

May 4 market cap

$ 786.21

$ 665.23

$ 2,182.63

$ 1,211.35

Revenue

1997

$9.38

$13.47

$36.96

$ 19.93

Projected 1998 revenue

$18.80

$27.00

$140.00

$ 61.93

Revenue multiple on ’98 estimate

@IPO

14.6

11.4

3.2

9.7

@ May 4 Close

41.8

24.6

15.6

27.3


)
1998
Mecklermedia
,
Internet.com
(NASDAQ:MECK)



Verisign (NASDAQ:VRSN) found a public reception for its digital ID
certificate issuing concept. Its first-quarter results were $4.0 million
top line, up 216% vs. the same quarter in 1997. Net loss was $5.2 million,
or $.27 per share vs. a net loss in the quarter ended March 31, 1997 of
$3.6 million, or $.21 per share. Market cap jumped from the IPO up 187% to
more than $785 million as of May 4 as investors discount ahead the market
for more digital ID needs.


This segment remains very nascent and our analysis forecasts that digital
IDs may be very commonplace at some point but probably as part of an
overall “trust” solution–that means security software, or another player,
may have to acquire Verisign at some juncture or build the offering
themselves.


Ironically, the Internet software sector hasn’t been as strong as ISS
Group, parent of Internet Security Systems (NASDAQ:ISSX), which grabbed the
attention of Wall Street and never let go. ISSX came public at just over
$300 million and ended May 4 up 116% at $665 million market cap. ISSX
posted first-quarter revenue up 173% to $2.2 million vs. 1Q97. Net loss was
$1.6 million or $0.19 per share ($0.12 per share on a pro-forma basis) vs.
a loss of $394K 1Q97 or $0.05 loss per share ($0.03 on a pro forma diluted
basis).


We continue to expect consolidation in the security sector as larger rivals
or potential rivals announce plans to move into this space. Microsoft
(NASDAQ:MSFT), IBM (NYSE:IBM) and Sun (NASDAQ:SUNW) in particular move
where the money is and it seems to be more and more in security as commerce
becomes the key drive for the Internet.


With valuations for newbie IPOs at record levels, pricing coming in at the
top or above range, and the after-market burners in full effect, we think
1998 could see several more high-flying Internet stock offerings. Already
investors seem eager for Inktomi to go live. If it’s anything like these it
could go ballistic as it dances its way down Wall Street.

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