Too Many Cooks Spoiling the Internet IPO Broth

Analysts say too many Internet firms do similar things, which makes them all less attractive to investors.
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Familiarity breeds contempt.

That's the problem with recent Internet IPOs, analysts say: Too many copy-cat companies. This year alone the public markets have welcomed 17 Internet service providers, 31 content/portal sites, 20 e-commerce companies, 22 software/infrastructure concerns and another 39 that fall into the catch-all category of service or hardware.

"When you see a really small dot-com company with not a lot of revenues, it encourages other companies to jump on the bandwagon," says

Internet.com

analyst Tom Taulli. The result: too many unprofitable companies offering similar products chasing the same investors.

According to

Renaissance Capital

, of 267 companies to come public this year 129 have been Internet firms. But though the dot-com companies have brought to market almost half of all IPOs, in the process raising $10.9 billion, Net deals have accounted for just 25% of total IPO proceeds.

Net issues are raising less than those brought by bricks-and-mortar companies, which often have the longevity and brand recognition that Web newcomers lack. But that hasn't stopped Internet companies from joining the public market.

Four Internet IPOs

tanked early last week. Even investment banks, which until then seemed willing to ride the roller coaster and get their IPOs, may be conceding that market conditions are just too tough. Last Friday five Net IPOs, including the highly anticipated offerings by

Women.com

and

Hotjobs.com

, were postponed until this week.

"We've had different themes this year," says Taulli. "You have a lot of me-too kinds of things. ISP-portal combinations, infrastructure, even the flowers theme."

Been there, done that.

Take ISPs.

Prodigy Communications

(PRGY)

headed out in February. A month later came

OneMain.com

(ONEM) - Get Report

, and a month after that

Log On America

(LOAX)

went public. But that's not all. In July, the Midwestern ISP

Voyager.net

(VOYN)

came public, as did the British

Freeserve

(FREE)

, and last week

Internet Initiative Japan

(IIJI)

braved the IPO waters.

Another played-out group is music sites. Just last month, sites that offered downloadable music were touted as the Next Big Thing. But three went public and quite frankly you can't have the Next Three Big Things.

MP3.com

(MPPP)

and

musicmaker.com

(HITS)

are down almost 50% from their first-day closing price, while the third company,

Liquid Audio

(LQID)

is down 27%. And the end may not be in sight. A fourth company offering downloadable music,

Tunes.com

, is slated to go public this week.

There's also a glut of companies that deal with health. Sure,

Healtheon

(HLTH)

burst out of the gate, in February. The company enjoyed much buzz thanks to the involvement of Jim Clark, founder of

Netscape

. But then came

drkoop.com

(KOOP)

and

drugstore.com

(DSCM)

. And the Street will see a slew of health-related sites in the weeks to come. IPOs for

HealthGate Data

,

Medscape

and

AmericasDoctor.com

are all expected to be priced within the month.

"There's so many

health sites out there who've tried to emulate the leaders that even the leaders don't look that unique anymore," says Renaissance Capital senior analyst Randall Roth.

Exactly. In this climate, even the companies that are likely to succeed have little chance of being noticed.

And then there are minicategories that have yet to gather critical mass but may soon see more imitators. Hotjobs.com, an online job finder slated to go public this week, will be followed later this month by

HeadHunter.Net

. Among Internet mail providers,

Yesmail.com

, on the docket for this week, is hot on the heels of

Mail.com

(MAIL)

and

Juno Online Services

(JWEB)

, which went out in June and May, respectively.

Reaching out to the consumer may already be passe. "Anything that builds out the plumbing for the Web," says Taulli, is likely to be a winner.

Juniper

(JNPR) - Get Report

, a networking provider whose customers include

Ericsson

(ERICY)

and

MCI WorldCom

(WCOM)

, is still up 60% since going public on June 25.

F5 Networks

(FFIV) - Get Report

, an infrastructure company that manages data traffic on company networks, is up 135% since its June 4 debut.

Companies are not at fault; it's the market mania, says Vincent Slavin, an analyst with

Cantor Fitzgerald

. "People jumped on the bandwagon, bought every piece of junk on the market, chased it to excessive levels, and now we're paying for it," Slavin says. "The dot-com sector caught every sucker and dragged them all in."

This week's highly anticipated

Red Hat

IPO may open the IPO floodgates again.