IPOs: From the Throne to the Dungeon

SAN FRANCISCO (04/17/2000) - For a while, it looked like any Internet company could go public and be a big hit no matter what it did for a living. But those days are history: Now it's doubtful that many Internet companies can go public at all.

The legend of the Internet IPO - stocks that would triple, quadruple, quintuple in their first day of trading - is no more than a fond memory. Now Internet IPOs often come public and head lower, that is, when they can be completed at all. And many IPOs that previously got royal treatment from investors early on have now been beheaded.

In the wake of last week's tech tumble, 42 of the 73 companies that went public in the first quarter of 2000 fell below their offering prices. The same underwriters who received criticism for pricing Internet IPOs too low, it seemed, actually priced them too high. Last week alone, the sell-off forced at least nine Internet companies to scale back their IPO plans by canceling their offerings, postponing them or reducing the amount of money they planned to raise. Of those that did manage to get out, many dropped immediately.

Asiacontent.com, for instance, was priced at $14 a share, inside the range it had expected. By the end of its first trading day, though, its shares had fallen more than 20 percent to $11. Other companies that had entered the market in better times but were seeking more cash through a secondary offering had to backpedal, too.

Global Crossing and Tricom scaled back their offerings, while ArtemisSoft, Modem Media and SciQuest delayed or withdrew secondary offerings. Most cited market conditions for the changes. While market volatility has contributed to the sudden shunning of Net IPOs, it's also true that investors are increasingly critical of Internet fundamentals. Unless the technology sector stages an impressive turnaround, it's likely that institutional investors will continue to choose selectively among the hundreds of Net companies in the IPO pipeline.

The desire to be part of an Internet IPO success story has been sucking talent from other, traditional industries. A continued slump in Net stocks is likely to stem the brain drain.

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