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Market fears test 'hot' IPOs
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May 11, 1998: 2:27 p.m. ET
Internet offering and noted ad company slated to compete against investor jitters
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NEW YORK (CNNfn) - Given last week's jittery stock market environment, it remains to be seen whether caution undermines zeal this week when advertiser Young & Rubicam Inc. and Verio Inc., a roll-up of Internet service providers, go public.
Internet Verio looks hot
Early readings show that, as an Internet play, Verio may be received as a "hot offering" as it readies an offering of 5 million shares at between $18 and $20 per share Monday.
The company has established critical mass on a national scale by acquiring or investing in over 35 local Internet service providers (ISPs). Through these still-loosely tethered acquisitions, it now serves over 100,000 customers in 36 metropolitan areas.
Integrating these sometimes fractious companies seems to be one of Verio's biggest hurdles.
"There's an execution risk here," says Bruce Smith, an independent Internet analyst. He notes that the company's success will be determined by its efforts to harmonize the regional ISPs into one national network without crippling its ability to stay afloat and eventually make money.
So far, the company isn't making any, having posted a loss of $46 million at the end of last year. It's expected to incur negative operating cash flow for the next several years to account for purchases and other consolidation costs.
If Verio is to achieve its goal of building a dominant share of the ISP market, it will have to fend for itself in a highly competitive playing field that includes such companies as PSINet, Concentric Network and DIGEX.
Brand appeal to help ad offering
Young & Rubicam is also expected to price Monday at $21-$24, raising $373 million. Despite its strong name recognition and its position as the fifth-largest advertising company in the world, some observers have raised concerns about the company's financial health and the cyclical nature of the advertising industry.
The company's revenues are expected to grow at a snail's pace, from $1.4 billion last year to $1.6 billion this year.
But Dan Dykens, a Renaissance Capital analyst, says Y&R's long track record and recent history of well-received restructuring make it a good long-term investment. In fact, Young & Rubicam is the pick of the week at Renaissance.
"Historically, they never had the strength on the finance side but management has firmed up its balance sheets and put financial controls in place," said Dykens.
Telecoms wrap week's roster
Other IPOs expected this week include two telecommunications companies that run the gamut from international to local markets.
Ursus Telecom, an international phone company focused on emerging markets, is expected to raise $50 million with a $9-$11 per-share offering.
MGC Communications, a competitive local exchange carrier similar to recent IPO US LEC, will bring a $59 million offering at an expected price of $16-$18 per share. 
-- by Bambi Francisco for CNNfn Interactive
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