Enjoying a boost from fellow dot-com darling
shares soared more than 50% on their first day of trading Tuesday after pricing at the high end of their range.
Shopping.com shares climbed as high as $28.43 before settling recently at $27.50, still up $9.50, or 52.8%, from their $18 IPO price. Israel-based Shopping.com sold 6.87 million shares, raising $123.7 million.
"I thought it would open up with a premium, but not this kind of premium," Sal Morreale, who tracks IPOs for Cantor Fitzgerald in Los Angeles. "It's a stock that's riding the coattails of a Google-type deal."
Morreale said he believes the IPO benefited from taking place on a strong day for the market and one day after Google's market cap surpassed rival
"It's the right business at the right time, with the growth of
and other online Web sites," he added. "It's a good comparative Web site. ... It works."
Shopping.com operates an online comparison-shopping service in which it receives revenue every time a user clicks through to a merchant's Web site. The site is the fourth-largest online shopping destination behind eBay, Amazon and Yahoo!
Renaissance Capital, a Greenwich, Conn.-based independent research firm that tracks new issues, noted that that Shopping.com has come a long way since its first ill-fated attempt to go public four years ago, months before the Internet bubble burst.
At that time, Shopping.com had a miniscule $525,000 in trailing sales and mounting losses, Renaissance noted. By contrast, it is now the largest online comparison shopping service in the U.S. with more than 20 million users a month and with revenue of $67 million in 2003. That was more than double sales of $29.1 million in 2002 and more than five times sales of $12.7 million in 2001.
And perhaps more importantly, 2003 marked the company's first year of profitability under generally accepted accounting principles, with net income of $6.9 million, or 36 cents a share. For the first six months of 2004, which excludes the all-important holiday season, Shopping.com lost $6.6 million, or $1.17 a share.
"Internet stories are once again in vogue," Renaissance wrote in a note dubbing Shopping.com its featured IPO of the week. That's because nearly all of the dot-com IPOs have been profitable, while the ones that haven't are very close to it, the firm wrote.
"Shopping.com may not have the same media buzz of Google, but it is one that investors will definitely want to place in their IPO shopping cart, especially ahead of the busiest shopping season of the year," Renaissance concluded.
That said, there is at least one risk to investing in Shopping.com. A substantial chunk of the company's revenue -- 43% in the first six months of 2004 and 38% in 2003 -- came from Google, according to a regulatory filing with the
Securities and Exchange Commission
. The agreement with Google that was responsible for generating the majority of that revenue expires in April 2006, according to the filing.
Google operates its own competing search engine for finding and comparing products for sale, called Froogle, and could decide not to renew the contract or negotiate less favorable terms, Shopping.com acknowledged. "Google could decide in the future that it prefers not to do business with us due to the competitive nature of our services," Shopping.com wrote. In that case, "we could experience a significant decline in our revenues and the value of your investment could decline."
That fact prompted Renaissance to caution, "With the various agreements it has with Google expiring over the next few years, it begs the question of whether Google will choose to become a more direct competitor," Renaissance wrote.