Weak Debuts May Thin Bulging Pipeline

After Wednesday’s sobering showing of Internet IPOs, don’t be surprised
to see a number of companies begin to bail out of plans to go public.

Two of the five Internet companies that launched IPOs Wednesday – Juno
Online Services and ZipLink – saw their stocks close the day below their
respective offer prices. And a third, EDGAR Online, finished only 6
cents above its $9.50 offer.

Here’s some perspective: Up until Wednesday, only two of this year’s 66
Internet IPOs closed below their offer prices on the first day of
trading – Digital Lava in February and COMPS.COM early this month. Two
others, Intelligent Life (May 13) and fashionmall.com (last week),
closed even on their first day of trading.

In other words, Wednesday gave us three of the seven worst debuts of the
year for Internet IPOs, providing the strongest evidence yet (as if we
needed it) that the market for new cyber stock offerings has become
saturated.

Yet few Internet companies that have filed IPOs have changed course,
which is kind of surprising since the record amount of venture capital
still being invested in Internet plays gives many companies viable
funding alternatives to a stock offering during a sagging market.

So far only two Internet companies that registered IPOs this year have
altered plans. Online health and medical information company WebMD,
which filed in late January, withdrew on the eve of its IPO when it
announced a proposed merger with health-care transaction processor
Healtheon.

Late last month Internet music retailer musicmaker.com postponed its
IPO, also just before shares were slated to begin trading, reportedly
because it was negotiating a licensing deal with a major music company.

Both companies made good moves, and not just because the market has been
roughing up Internet stocks. The merger gives WebMD an opportunity to be
part of the biggest health care Web site geared to medical
professionals. It also gives the company a robust partner in Healtheon,
whose stock has been among the best-performing this spring.

And musicmaker.com desperately needs licensing rights from big-time
music publishers if it is to expand beyond its current meager slate of
alt-rock and oldies artists. Unless I’ve missed something, it’s worth
noting that the licensing deal cited as the reason for the postponement
has yet to materialize, making one wonder if it was a cover story.

Even if it were, musicmaker.com still did the right thing because its
IPO was incredibly premature. The company’s 1998 revenue of $74,000 isthe lowest I’ve seen from any company considering going public.


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