What the Market Needed: A Few Good Net IPOs
Feb 12 1999
The way the stock markets are yo-yoing, is it any wonder prognosticators are feeling shy? When the market tanked earlier in the week, words like "collapse," "bubble hissing" and even "bear market" were bandied about. But it was nothing that a few Internet stock offerings couldn't shake. The debuts from second-tier Netcos like Healtheon, VerticalNet and old-schooler Prodigy all more than doubled, the first "triple double" ever, according to the New York Times. But Healtheon, which had cancelled its IPO last fall, had the largest gain - 292 percent - and perhaps the highest debt at $85 million.
The San Jose Mercury News' Monua Janah gave the neatest package on the trio of offerings, saying that money-losing Net companies were still the sweethearts of the market. The three companies are now worth a combined $4.5 billion, Janah figured, but also lost a combined $165.6 million in their latest fiscal years. The Merc scribe saw a theme of "industry-specific content" with Healtheon targeting health care, VerticalNet creating niche-industry Web communities, and Prodigy going after Hispanics. The biggest irony? Janah said Catapult Communications, a telecom-equipment tester, actually makes money but had the smallest IPO rise of only 30 percent.
Wired News interestingly chose to play up Prodigy's IPO, with reporter Joanna Glasner tracing the Net pioneer's fall from being an AOL competitor with 2 million customers to an ISP with only 700,000 subscribers. Surprised analysts said one factor in the IPO's success was that the company had a recognizable brand name. But let's face it, the real value-add was the burn rate: Prodigy had $101.5 million in revenue in the first nine months of 1998, and a loss of $47.9 million in the same period, according to Glasner.
The Journal focused on Healtheon and found that more than just mass psychology was at work. The company pulled back from IPO plans last October when it couldn't find institutional buyers at $6 to $8 a share. So what happened between then and now? Well, sure, Internet market mania returned. But also, as Journal scribe George Anders wrote, in the months since October, Healtheon has put a working version of its network system in about 300 California doctors' offices and reached agreements to expand the service to reach several thousand doctors. The company also won a contract to develop an Internet-based data system for Baylor Health Care System in Dallas and signed a joint marketing agreement with IBM. Could it be that investor reaction was better this time because of fundamentals?
Always looking for an alternative angle, ZDNet's Larry Dignan hit it just right when he said "individual investors that run up IPOs on the first day are just plain wacky." Dignan pointed the finger at the most recent example of extreme IPO frenzy pricing: the poor suckers who bought Theglobe.com on opening day at $97 a share. "Just hold off for a few weeks - even days - and you get a cheaper price," Dignan said. Sage advice, Larry.
Healtheon Raises a Healthy $40 Million
TheStandard.com
Prodigious or Precarious?
TheStandard.com
3 Internet IPOs Have Fast Start
Mercury Center
Nasdaq Soars in Its Biggest One-Day Gain
New York Times
Net Pioneer's Prodigious IPO
Wired News
Debut Market Roars to Life
CBS MarketWatch
Patience Can Pay Off With High-Flying IPOs
ZD Interactive Investor
In First Day of Trading, Shares Of Healtheon Nearly Quadruple
Wall Street Journal