Three Internet IPOs, One Market Embrace

All three Internet companies that began trading Tuesday can claim some
kind of edge to attract investors.

One sells software in the hot e-commerce space. Another is first-mover
in a market – online loan processing – that promises to be a lucrative
niche. The third is an infrastructure/bandwidth play, a sector that has
emerged as a favorite among Internet investors and analysts.

But only mortgage broker E-Loan was able to flex its muscles in the
early going, opening Tuesday at $20 per share, 43% above its offer price
of $14 for 3.5 million shares, before jumping as high as $51. It had
settled in the mid-$30s by the afternoon, virtually assuring it of a
first-day close of more than 100% above the offer. Shares are trading on
Nasdaq under the symbol EELN.

Besides its ownership of a brand-critical “e” category –
is pretty easy to remember – E-Loan boasts impressive revenue growth.
The Dublin, Calif.-based company had $6.8 million in revenues, 555%
above the ’97 total of $1 million. Early investors appear not to be
bothered by the mounting losses, which grew from $1.4 million in 1997 to
$11.2 million last year.

The other two ‘Net IPOs, from banking software vendor nFront and
dedicated access provider Digital Island, struggled out of the gate, though nFront showed signs of life.

Offering 3.9 million shares at $10 each, nFront opened trading Tuesday
at $10.56, and then clawed its way into the low teens. Shares trade
under the Nasdaq symbol NFNT.

Located in Norcross, Ga., nFront sells e-commerce software to small and
mid-sized banks that want to offer services online. A potentially huge
market, but also one threatened by the recent wave of mega-mergers among
banking giants.

Given that ominous trend for its customer base, nFront’s revenue growth
of 38% in 1998 (from $0.8 million to $1.1 million) will be a legitimate
sticking point for some investors.

Digital Island’s flat start comes as a slight surprise since the
company, trading under the Nasdaq symbol ISLD, plays in the sector that
is the current favorite among Internet investors and analysts –

Based in San Francisco, Digital Island targets multinational
corporations for their networking services, which include application
hosting, network management and ISP access in 17 countries via unshared
Internet connections.

Like many infrastructure companies, Digital Island has incurred heavy
upfront costs, covered until now by generous amounts of venture capital
(including a $50 million infusion in March). Sales last year were $2.3
million, against $16.6 million in net losses.

Digital Island has some impressive customers, including Cisco Systems,
Novell and Mastercard. However, it also faces intense competition from
the big telcos, which are expanding data services offerings, and the
worldwide network of fiber that will give customers high-speed alternatives.

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