Orbitz Flops Amid IPO Flurry

Updated from 3:51 p.m.

The IPO market got a reality check Wednesday, as three of the five stocks brought to market on the busiest day for new-issue debuts since August 2000 had muted performances.

Shares of Orbitz (ORBZ) finished down $1.35, or 5.19%, at $24.98 after a turbulent first day of trading. The eagerly-anticipated deal opened sharply higher, but dipped below its issue price for a second time late in the session.

At the end of the year, analysts said still-cautious investors may be shying away from IPO investments. "Managers are banking their gains," said Richard Peterson, an analyst at Thomson Financial. "They don't want to lose ground in the final trading sessions, especially as these stocks carry higher risk."

The biggest IPO of the year, a $3 billion deal from insurer China Life (LFC), managed to stay significantly above its opening level. The stock closed higher $5.04, or 27%, at $23.72.

Meanwhile, Universal Technical Institute (UTI), a provider of technical education, rose $5.85, or 29%, to $26.35.

Elsewhere, Falcon Investment Trust (FLCN), an automobile financing company, was flat at $9. And Provide Commerce(PRVD), an online marketer of perishable goods, dropped $2.29, or 15.3%, at $13.00.

Almost two dozen IPOs were slated to launch in December. That's double the number in the first half of the year alone and the busiest month in three years.

Orbitz's IPO is perhaps most significant, as it is the first high-profile Internet stock to go public in the post-bubble era and is considered a barometer for other deals next year.

Bucking the trend of successful deals in 2003, the online travel company has not had a profitable year. Orbitz earned $4 million on revenue of $64.4 million in the quarter ended Sept. 30, but for the first nine months of the year reported a loss of $1.4 million. In 2002, it had a loss of $19 million.

Francis Gaskins, an analyst at IPODesktop.com, suggested Orbitz's valuation was too high. Assuming that the company earned $4 million, which is what it booked in its only profitable quarter ended Sept. 30, for four quarters, it would have an approximate price-to-earnings multiple of 65, before taxes. That compares to 20 for the S&P 500, using 2003 earnings estimates.

Meanwhile, Gaskin's indicated Orbitz's top-line growth was not accelerating fast enough to justify its P/E. In the first nine months of the year it had sales of $172 million, which averages out to $57 million a quarter. But in the quarter ended Sept. 30, sales were $64.4 million, not a big jump from the aggregate level. "Those months included July, which is peak season for the travel industry," added Gaskins.

Orbitz sold 12.18 million shares for $26 a share, above the original deal size of 11 million shares and the proposed range of $22 to $24 a share, valuing the offering at $317 million.

Of the total shares being offered, Orbitz is selling 4 million shares while 8.18 million shares are being offered by certain stockholders. The company said it plans to use the approximately $93.9 million in net proceeds for working capital and general corporate purposes.

In 2001, five major airlines backed Orbitz's launch of a Web site to establish a distribution channel for air travel suppliers, as a way to access the growing online travel industry.

According to the deal, Continental(CAL), Delta(DAL), Northwest(NWAC), United and AMR (AMR) will cash out of most of their original investment.

Orbitz's main competitors include Expedia, whose shares were recently bought back by parent InteractiveCorp (IACI), and Travelocity, which is owned by Sabre Holdings (TSG).

"The company is third behind Expedia and Travelocity, in terms of market share," said Gaskins. "It is very hard to go from number three to number one."

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