Morgan Stanley Handles Offerings for AltaVista and HomeGrocer.com

SAN FRANCISCO -- Morgan Stanley Dean Witter sure knows how to cap off a busy week for tech stocks. Two high-profile Internet companies, HomeGrocer.com and AltaVista, filed for initial public offerings after Friday's market close. Guess which bank's name was at the top of both prospectuses?

The timing appears right for both filings. Recent offerings like Akamai (AKAM), VA Linux (LNUX) and FreeMarkets (FMKT) have racked up record or near-record first-day gains. With banks doing their best to get the deals out fast in such a hot market, Morgan Stanley is moving impressively fast.

Also impressive is the amount of capital being raised by both companies. AltaVista, the must-use search engine turned also-ran Web portal, wants to bring in up to $300 million. HomeGrocer, an early entrant in the crowded market for online groceries, wants to raise as much as $250 million.

This isn't the first time that AltaVista has considered bringing itself public. The company, whose search technology was developed in the cubicles of Digital Equipment, first filed in August 1996, just one month after Internet star Yahoo! (YHOO) went public. After withdrawing the offering just seven weeks later, AltaVista became part of Compaq (CPQ) when Compaq scooped up Digital in June 1998. A year later, uber-Net investor CMGI (CMGI) bought a 81% stake in the company.

Since then, there's been much speculation about an IPO for one of the oldest Internet search companies, but it took the new wave of Net madness to get the paperwork filed again. It's hard to say no to a rally that boosted the TheStreet.com Internet Sector index 66% in two months. Under CMGI, the company has blossomed into a portal with features from Shopping.com and Zip2.

That final step could be the key to the company's IPO success, says IPO Monitor senior analyst Gail Bronson. The direction of CMGI is "a recipe for successfully building out companies," she says. And the cash from the offering will help fuel further marketing of the brand, which will draw people to take a second look at the site, she says.

For the quarter ended Oct. 31, AltaVista posted a loss of $267.7 million on revenue of $52.6 million. Advertising expenses were $32.1 million during the quarter. The company plans to spend about $120 million on advertising during the fiscal year ending next July to increase brand awareness, according to its filing with the Securities and Exchange Commission.

Adding pressure to AltaVista's need for marketing, the company has an agreement to provide direct access from Compaq PCs, giving it a healthy default audience. But Compaq can nix the deal if the AltaVista Web site fails to be one of the 12 most-visited sites for four straight months.

AltaVista's other underwriters are Chase H&Q (listed on the prospectus as Hambrecht & Quist), Robertson Stephens, Prudential Volpe Technology and Wit Capital. Net proceeds from the offering will go toward ads, investments in joint ventures or acquisitions, and general purposes.

HomeGrocer too enters a space that is bobbing with competition. Peapod (PPOD) has recently restacked its executive team. Webvan (WBVN) recently raised $400 million in its Nov. 5 IPO.

Since its launch in June 1998, HomeGrocer has been quickly expanding. serving customers in Seattle, Portland, Ore., and Los Angeles. Rival Webvan is moving into some of those markets. And Albertson's (ABS) has also introduced an Internet-based service in Seattle. HomeGrocer plans to move into as many as 10 more areas in the next year.

HomeGrocer's balance sheet is steeped in red. For the nine months ended Oct. 2, it posted a net loss of $39.1 million on revenue of $10.9 million. But its big boost comes from a backing from the mother of all e-commerce sites -- Amazon.com (AMZN).

"I'm not sure how much of an appetite the Internet IPO market has for food-related issues" given the number of competitors, says Bronson. Peapod is off 53% from its June 1997 IPO price of 16 a share. Webvan was priced at 15 and closed its first day at 24 7/8, but it's since seen its shares sink 24%.

HomeGrocer's underwriters also include Donaldson Lufkin & Jenrette, H&Q, Banc of America Securities and J.C. Bradford.

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