NEW YORK (CNNfn) - Shares of ArrowPoint Communications Inc. rose about 265 percent on their first day of trading Friday, riding a wave of investor enthusiasm for Web infrastructure stocks.|
ArrowPoint, based in Acton, Mass., makes switches that route requests for Web content or transactions to the network server that is best able to handle them. The company's switches can recognize hot content, such as a breaking news story, and automatically add capacity on a Web site to handle user requests for that content.
ArrowPoint's (ARPT: Research, Estimates) switches also redirect requests for Web content when a server fails and protects against attempts by computer hackers to disable servers or keep servers busy performing useless tasks.
"These guys have technology that can look over the crowd, find the guy waving the credit card, and bring him to the front of the line," said David Menlo, president of IPOFinancial.com based in Millburn, N.J.
In late afternoon trading on Nasdaq, ArrowPoint stock was up 90-7/16 at 124-7/16, or a 265 percent gain. The company raised $170 million by selling 5 million shares at $34 each through lead underwriters Goldman Sachs & Co. and Deutsche Banc Alex. Brown. Earlier this month, the underwriters had expected to price the shares between $15 and $17 each, according to a filing made with the Securities and Exchange Commission.
"As the IPO market has been deteriorating for the last two weeks, IPO investors are now looking for the better deals," Menlo said. "You have more people focusing on fewer deals."
At its current share price, ArrowPoint has a market capitalization of $4.24 billion, even though its revenue totaled only $12.4 million last year and it lost $12.6 million. However, investors have shown a willingness to abandon traditional valuation standards when dealing with Web infrastructure companies. As an example, Akamai Technologies (AKAM: Research, Estimates) has a market capitalization of $15.3 billion, even though its revenue totaled only $4 million in 1999 and it lost $57.6 million.
ArrowPoint said that the principal purposes of its offering were to create a public market for its stock, increase its visibility in the market place, and obtain additional working capital.
The market for Internet infrastructure products is new, rapidly evolving, and very competitive. ArrowPoint's competitors include large networking-equipment companies, such as Cisco Systems, as well as companies such as Alteon WebSystems, F5 Networks, and Foundry Networks.