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IPO slump has few winners
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June 15, 1998: 3:07 p.m. ET
Bebe Stores a bright light; some issues may be discounted or postponed
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NEW YORK (CNNfn) - It's been a tough month for IPOs.
Last week, with the exception of Inktomi (INKT) and Microstrategy (MSTR), the average return for the 14 other newly listed offerings was a negative half percent.
Given this disappointing performance and the tempered 10 percent return for all IPOs this year, some IPO watchers wouldn't be surprised if up to half the 16 tentatively scheduled offerings this week are postponed or offered at sharp discounts.
A gloomy performance and pricing environment, however, often can separate the fundamentally sound deals from the speculative ones.
This will be a good test for Software.Net, which is expected to raise $40 million with a $7 to $9 IPO.
The online software retailer offers 2,800 types of off-the-shelf computer software 24 hours a day, seven days a week. Since its inception in 1994, Software.Net has generated $29.1 million in revenue and has accumulated losses of $13.1 million.
The company is in a large and fast-growing market. Software sales overall totaled $16 billion last year and are expected to grow at a compounded annual rate of 16 percent over the next five years. Online software sales are expected to grow even faster. But in order for Software.Net to capture those sales it may burn through precious capital in an effort to market itself against better known competitors such as Egghead Software.
"They need to strike more alliances with other portals so people will see their ads," says Steven Tuen, analyst at IPO Value Monitor. "This means their selling expenses will be high to pay for such deals and that's a huge risk." On the plus side, Software.Net's chief executive is a former marketing head of Amazon.com (AMZN).
Bebe Stores is floating 1.2 million shares at $11 to $13 this week. The upscale, trendy women's apparel retailer was chosen as Renaissance Capital's IPO of the week because of the firm's impressive sales growth and margins. Tuen of IPO Value Monitor also notes that Bebe's prospective IPO is cheap relative to the retailing group.
BancAmerica Robertson Stephens is leading Bebe's offering as well as that of Cognizant Technology Solutions. Cognizant provides software solutions, development and maintenance. Sales doubled last year to $24.7 million while profits rose 60 percent to $1 million. After its $11 to $14 IPO, Cognizant will have a market capitalization of $118 million. That's half of the potential market cap Software.Net will have if its IPO goes as planned. But unlike Cognizant, Software.Net has no earnings.
Anthra Pharmaceuticals, which develops drugs for the treatment of certain cancers, is scheduled to price 2.7 million shares at $9.50 to $11.50. This deal could see some demand as it already has made an upward revision to its original offering.
Too many IPOs in the pipeline?
As June tends to be one of the most active months of the year for IPOs, some market-watchers are blaming the flooded supply for the slump. Elizabeth Mackay, Investment Strategist at Bear Stearns, notes that the typical ramp-up in equity issuance may be the "culprit behind the acute correction in small-caps." 
-- by Bambi Francisco for CNNfn Interactive
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