Net Stock Summit: IPO Mill Working Overtime

SAN FRANCISCO -- Everybody's doing it! In the wake of such stellar IPOs as eBay (EBAY) and theglobe.com (TGLO), more than 33 Internet companies are in line to make a grab for that great golden ring called the Internet IPO.

Five companies have debuted on the secondary markets in 1999 -- a rate of nearly one a week. They include MarketWatch.com (MKTW) and Prodigy (PRGY). Another 35 companies have filed prospectuses with the Securities and Exchange Commission, including ZDNet Group, Marimba, iVillage and eToys. In 1998, 38 Net companies went public, according to Securities Data.

The flood of new filings may come at an awkward time. Concerns of rising interest rates -- a killer of stock rallies -- are resurfacing. A backlash against day traders, who are often fingered as the culprits behind the maniacal rallies in some Net stocks, has started in the press. Should such enthusiasm for Internet shares wane, the balance could shift away from the demand for them and in favor of the supply.

The Internet bulls argue that institutional investors whose prudent views on overvalued stocks held them back from investing early in the Internet rally could jump in now, especially in the IPO allocations. "In order to participate in growth, you are going to have to be participating in emerging technology stocks -- including Internet stocks -- as they are coming public," says Bruce Gray, a fund manager for Western Investments.

And Gray intends to do just that. "There are companies we are investing in now that are coming public in the next 18 months."

Bum Rush the Show Net IPOs Coming Soon to a Market Near You Issuer Proposed maximum offering (in millions) OneMain.com $143.8 ZD Net Group 130.0 Priceline.com 115.0 eToys 115.0 Value America 97.8 Autobytel.com 82.8 Vignette 78.2 Proxicom 75.0 NetObjects 70.0 WorldGate Communications 64.4 Autoweb.com 57.5 Marimba 56.4 WebMD 55.0 Critical Path 51.8 MiningCo.com 50.0 Allaire 50.0 iVillage 46.0 FlashNet Communications 46.0 iTurf 46.0 Mpath Interactive 46.0 Healtheon 46.0 Multex.com 41.1 FlyCast Communications 40.3 Launch Media 40.3 Sagent Technology 40.0 Net Perceptions 40.0 Network Plus 40.0 Litronic 38.0 WebTrends 33.0 Town Pages Holdings 23.0 Log On America 17.3 ForeignTV.com 16.8

Source: Securities Data, SEC filings.

But are the institutions really interested in the long-term gains of Internet companies? Many IPO candidates won't see profits for years. Instead, their stocks will rise as enthusiastic individual investors snap shares of often illiquid issues. Recent Net IPOs have surged several times over in their first few days or hours on the market, only to sag over the next few months. EarthWeb (EWBX), theglobe.com and MarketWatch.com are all several times above their offering prices. But as of Thursday's close, they were down 58%, 39% and 54%, respectively, from their record highs.

Eric Linser, chief investment officer at RSS Investment Counsel, says while institutional investors are taking chances on Internet companies, many are likely to sell them almost immediately to lock in profits instead of risking volatility to await long-term gains. And many simply accept that they'll double their investment on an Internet offering, he says.

And so far this year, that theory has held true. The five technology IPOs have gained an average of 130% in their first day of trading, compared with a 34.4% one-day gain in 1998, according to Securities Data. Non-tech IPOs have averaged just 7.4% on their first day of trading this year, compared with a 9% first-day gain last year.

Will Internet companies entering the public equity markets continue to see such warm welcomes, at least in their first few days? Investors seem to think so.

"You will find tremendous growth in smaller, less-known emerging technology companies on the leading edge," says Western Investments' Gray. "We are in the first or second inning of a nine-inning game."

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Concerned about the future of Net stocks? TSC is holding a special summit on Friday to discuss the Internet sector. Join columnists James J. Cramer and Herb Greenberg, Andy Kessler of Velocity Capital, Nicholas Moore of Jurika & Voyles, CIBC Oppenheimer's Henry Blodget, Internet Fund manager Ryan Jacob and Brian Salerno of Munder Capital. You'll be able to listen to a live broadcast of the event and later read the transcripts -- but first, help us shape the discussion. Visit this page for the details.

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