It's getting quiet out there. The IPO market isn'twhat it was even a couple of months ago.
( INET). The El Segundo,Calif.,-based operator of small, consumer-focused Websites managed to go public this month, unlike agrowing crowd of other companies being forced to pullor postpone their IPOs.
But its entry into the public markets camewith a cost. Instead of going forth with its initialplans to sell 9.57 million shares between $10 and $12a share, Internet Brands settled for selling 6 millionshares at $8 each.
Instead of raising as much as$115 million, the company took in $48 million, orabout 42 cents for every dollar it had hoped to raise.
The market seems to agree with that revisedvaluation. Internet Brands closed its first day oftrading at $8, unchanged from the offer price --despite trading volume of 1 million shares, which wasmore than 10 times the average daily volume sincethen. The stock closed Friday at -- you guessed it -- $8.
This is a far cry from the trend of
first-daypops from earlier this year. And it may be a signthat the IPO market has, for now at least, returned tothe cold-eyed sobriety it displayed earlier thisdecade.
But what does it tell us about Internet Brands?And what should investors be thinking about as theyappraise this latest entrant into the Internet sector?
Internet Brands is Barry Diller's
writsmall -- a collection of online brands specializing inspecific needs and services. But while Diller ismaking plans to break up IAC into a group of morefocused and distinct brands, Internet Brands is intenton keeping its family together under the roof of asingle public company.
Unlike a lot of Internet portals and giants, thesites operated by Internet Brands aren't a stew offar-flung properties, but focused on e-commerce,classifieds and online communities. And most aregrouped in targeted topics: automobiles, travel andhomeownership. Some of the sites includeCarsDirect.com, MustangForums.com, BBOnline.com,WikiTravel.org and DoitYourself.com.
Few of these sites are likely to show up on a Top100 sites list by themselves. But as a group they haveprovided Internet Brands with steady and impressivegrowth.
Between 2004 and 2006, the company's revenue grewto $84.8 million from $61.1 million, while its profit expanded to $38.8 million from $2.9 million.
Normally, this kind of financial performance wouldcause an IPO to be greeted with open arms, but as isoften the case, there's a catch -- and it came this year.
For the first ninemonths of 2007, revenue totaled $65 million, down 0.3%from the same period in 2006, largely because of aslowdown in advertising by automobile clients. "Theautomotive industry has generally been in a downwardcycle beginning in the second half of 2006," thecompany said in its prospectus.
That's too bad, because another one of InternetBrands' key areas, homebuying and homeownership, isgoing through its own slowdown. Consumers just aren'trushing to sites like Loans.com and Mortgage101.com.And that's not likely to change for a while.
Amid the slower revenue, Internet Brands hasn'tkept costs down. Costs of revenue grew to 29% of totalrevenue in the nine months through Sept. 30, up from25% a year ago. And general and administrative costs(led by stock-based compensation) jumped to 34.5% ofrevenue from 25.5%. Both of those results contributed to the swing to a loss of 14 cents a share in the nine-month period,against a 33-cent-a-share profit a year earlier.
Investors in the IPO seemed to like the steadytrack record that Internet Brands has built up over theyears. But there are some unsettling trends showing upin 2007. So it's understandable that the company wentpublic but received the cold welcome that it did.
That's not great news for Internet Brands.But if it means that Wall Street is starting to bejudicious again about valuing IPOs in general, that'sgood news all around.