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IPO appetite still healthy
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December 14, 1998: 10:01 a.m. ET
Net issues continue to claim the catbird seat as December proves busy month
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NEW YORK (CNNfn) - Investors, still hungry for IPOs after being starved between August and October, are expected to swallow the smorgasbord of new issues served daily this month, turning what is traditionally a low-key time for IPOs into one of the best performing Decembers in six years.
"The dearth of deals in the fall means there's still a lot of pent-up demand showing up at the end of the year," said David Menlow of IPO Financial Network.
Indeed, most of the interest can be credited to Internet-IPO mania and recent strength in technology issues. Even as profit-concerned bears roamed the earth last week, Net IPOs, led by Xoom.com, dominated the offering calendar and led the basket of new deals up 22 percent to beat the averages.
Granted, most online IPOs inflate early on. For that reason, coupled with the onslaught of such deals in the past two weeks, the average December performance for 1998 IPOs is up 3.2 percent. That return puts this month well on track to be the best performing December since 1992.
The week ahead
The five deals on the calendar for this week -- particularly the three Internet-related IPOs -- may be hard pressed to keep up with their predecessors.
"If market psychology outweighs the fundamentals for smaller issues, then it could be a tough week for small cap stocks," said Matthew Johnson, growth stock analyst at Merrill Lynch. "Then again, we're seeing a broadening out of performance occurring in the smaller issues and that's a positive sign."
Infospace, the Hambrecht & Quist-led IPO hopeful, held up its planned debut last Wednesday due to accounting problems with the Securities and Exchange Commission. It's expected to try again this week.
The Internet portal company provides a Web-based directory of wide-ranging content from yellow and white pages services to news and public records, city guides and business services. Since its founding in March 1996, it has generated $7.2 million in sales, mostly from national advertising revenue, and lost $4.4 million.
With 45 percent of its costs related to sales and marketing to ramp up its local advertising business, losses were rising faster than revenue for the first nine months of this year. But that's all part of being a start-up.
"At this point, Infospace has to focus on establishing cyber-muscle mass, and then you worry about getting cut," said Randall Roth, Renaissance Capital analyst.
Infospace is being priced at a 35-times trailing-sales multiple, higher than many similar companies that also depend on advertising.
Also out this week is Pacific Internet, Singapore's largest Internet service provider. Lehman Brothers is the lead banker and global coordinator for this 2.5 million-share offering priced between $13 and $15 a share.
The ISP has a base of 170,000 subscribers in Singapore, giving it 40 percent of the market there. Its customers pay monthly service costs ranging from less than $2 to as much as $60.
Pacific Internet also is the leading ISP in the Philippines and Hong Kong.
Artificial Life, which makes "intelligent" software robots that can be used to automate and simplify complex Internet activities such as direct marketing, sales response and call center operations, hopes to raise a modest $8 million. New York Broker is the banker behind this tiny deal.
Concur Technologies is pricing 3.1 million shares this week at $9.50 to $11.50 each. Robertson Stephens is the underwriter. The Redmond, Wash.-based company produces software that tracks and automates the reporting of travel expense information. Firms that use Concur's products include American Airlines, Anheuser-Busch and the New York Times.
Outside the technology realm, Legg Mason is set to price 1.4 million shares of Metrocorp Bancshares at $10.50 to $12.50. Metrocorp is a bank holding company based in Houston, Texas.
Valuing Net IPOs
Searching for an alternative benchmark multiple to value Internet IPOs has become the Web investors quest for the "Holy Grail." Price-to-sales has been the interim replacement for the commonplace price-to-earnings ratio. Traffic growth is another good gauge, but sometimes it's hard to nail down, as in the case of Infospace, which doesn't have a good estimate itself.
With no proper valuation metric, Internet IPOs continue to baffle many. James M. Glickenhaus, who heads investment firm Glickenhaus & Co., says the price investors are paying for Internet IPOs "is like paying $50,000 for a Beanie Baby."
Of course, one can argue that if a bag of beans can soar astronomically, then eBay (EBAY) isn't overvalued at all. On the other hand, maybe Beanie Babies are just a better investment. If valuations aren't predictable -- and an eventual price decline is -- then when all is said and done, Glickenhaus says, "at least you're left with a fluffy animal." 
-- by staff writer Bambi Francisco
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