Filling a Healtheon Hero's Big Shoes

Mike Long will pass the CEO torch to WebMD's snazzy young head, Jeffrey Arnold. Also, some bargain-basement stocks.
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In numerous columns, as well as a speech or two, Healtheon (HLTH) has been my poster child for the "I-have-a-dream" Internet IPO.

The Santa Clara, Calif., company that's building a networked community for doctors, patients, hospitals, insurance companies and drug makers was able to sell shares to the public for exactly two reasons (and not, to be sure, in this order): It taps into the potentially huge market for healthcare information, and it's the third brainchild of

Silicon Graphics

(SGI)

and

Netscape Communications

founder James Clark. (The company plans to make money by brokering transactions such as referrals, charging subscriptions to its site and peddling healthcare-related goods.)

I had the good fortune of mentioning my Healtheon thesis in June in front of Dick Kramlich of

New Enterprise Associates

, a Healtheon backer who was practicing his trade before most of the people working in Silicon Valley graduated from college.

"Have you met Mike Long?" Kramlich asked, referring to Healtheon's CEO. "No," said I. "Enough said," Kramlich replied. "Okay," I returned, "if Mike Long is so great, Dick, why isn't he going to be CEO of Heatheon when it merges with

WebMD

," the medical portal in Atlanta? Said Kramlich: "Because Mike's a very wise man."

Huh?

Well, I've since met Mike Long, who basically agrees with me that times have changed to the point where a previously half-baked company like Healtheon can go public. And I agree with Dick Kramlich that Long is one impressive guy. But why oh why, Mike, are you turning over the CEO job to 29-year-old Jeffrey Arnold, the slick-talking marketeer who heads WebMD?

"Jeff is a marketing genius who'll be one of the great Internet CEOs," says Long. "He's in a position to make a 20-year commitment," whereas Long, 47, with his 3 million shares and options of Healtheon, clearly won't need to work for two more decades. Besides, says Long, "Healtheon WebMD is a high-profile company. I would prefer a lower-profile media position for myself. I much prefer to be an inside guy."

Let's backtrack for a moment. Long formerly was CEO of software services provider

Continuum

in Austin, Texas, which he sold in 1996 to

Computer Sciences

(CSC)

. He joined Healtheon in July 1997 after being hounded for the better part of a year by venture capitalist John Doerr (more on him below), whose firm,

Kleiner Perkins Caufield & Byers

, also invested in Healtheon.

To illustrate how far the company and medium have come, Long recalls that Healtheon spent 1996 "defending" the Internet and then, for a while later, defending the new medium's security. Now that few seriously question either point, he's trying to make all the pieces fit together, a massive engineering and marketing task. And he insists there's every reason to believe he's sticking around. Though Arnold will be CEO -- a chance, says Long, for the younger executive to learn -- Long will be chairman and chief operating officer.

Healtheon lost $54 million last year on revenue of $49 million. Despite its stock price having fallen to 42 3/8 Thursday from more than 126 in May, the young company is worth almost $3 billion, and its fans include

Microsoft

(MSFT) - Get Report

, which is investing $250 million in WebMD.

Asked if this sort of valuation, and Healtheon's ability to go public with such heavy losses, isn't a bit unnatural, Long responds, "I don't know what unnatural means anymore."

Join the club.

Doerr Answers

Venture capitalist John Doerr of Kleiner Perkins is famous for lots of things, most notably his early investments in

Sun Microsystems

(SUNW) - Get Report

, Netscape,

Excite@Home

(ATHM) - Get Report

(and Healtheon, of course). He's also well known for repeatedly opining that the Internet, no matter how frothy its public-market value becomes, remains in the early innings of a long ballgame.

So with baseball metaphors breaking out in a

semiconductor piece in this column earlier in the week, it seemed like a good time to ask Doerr what the current inning is. He responded with a new metaphor, one that is instructive both for his mindset (unchanged) and his use of Web shorthand.

An annotated version of Doerr's missive: "WRT

with regard to Internet development, imho

in my humble opinion we're still just a few milliseconds after the big bang."

Thanks, John. The message is crystal clear.

You Too Can Get In at the IPO Price -- Or Better

When I first saw the

Friedman Billings Ramsey Group

(FBR)

ad in

The Wall Street Journal

Wednesday, I'd thought they'd stolen the joke I'd planned to use here. "To everyone who's wanted to get in on IPOs: Congratulations," screamed the ad for

fbr.com

, the Arlington, Va., investment bank's new dot-com unit. "You've got your shot."

It looked odd for a brokerage famous for underwriting second-tier IPOs to be teasing investors who'd lost their shirts, and of course that's not at all what FBR was doing. Instead, it was trumpeting its entry into the IPOs-for-the-rest-of-us category.

The real story is that FBR's headline is more accurate than they or owners of recent Internet IPOs would like to admit. You've heard the bellyaching over how the average investor isn't able to get allocations of hot IPOs. But now, who needs fbr.com,

E*Trade Group's

(EGRP)

E*Trade Securities or

Wit Capital

(WITC)

? Anyone can get in now on fallen stars at or below their IPO prices.

An incomplete sampling of recent IPOs now trading significantly below their offering price includes:

Vialog

(VLOG)

,

Launch Media

(LAUN)

,

Value America

(VUSA)

,

iTurf

(TURF)

,

NetObjects

(NETO)

and

Quokka Sports

(QKKA)

. Oh, and yes,

TheStreet.com

(TSCM)

closed Thursday at 18 9/16, nearly 50 cents below its offering price.

Adam Lashinsky's column appears Mondays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a monthly column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at

alashinsky@thestreet.com.