IPOs Still DOA
The bear market in technology continues, and the pain is
particularly prevalent in the IPO arena, as fewer and fewer deals are making it
to market. There were a whopping 129 IPOs in the first quarter of 2000, but in
the first quarter of this year, there were only 21, and of those, only seven were
directly tech-related. Of the companies lucky (or unlucky) enough to make it to
market since the meltdown began last March, their post-IPO performances have
been dismal. This week I would like to look at a few companies that went public
in the last year to see if any are undiscovered gems that might be worth keeping
an eye on. There are many, many tech disasters out there, and while we wait for
the Nasdaq to bottom, it’s pretty amazing kicking through some of the rubble.
Bye-Bye High-Fliers
Long gone are the heady days when a VA Linux
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a FreeMarkets
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suddenly surge above $300 per share. FreeMarkets peaked in January 2000 at 370 and
is currently trading at 7 1/4, while Linux topped out at 320 before sinking back
to 2 13/16. There are also a slew of companies that are being de-listed or
currently going to 0. Analysts have already been saying that having the bubble
pop will actually force a lot more discipline into the IPO process and increase
the viability of the ones that do go public.
Until tech does turn around, though, the prospects for IPOs
will remain bleak. What about some of the more recent offerings? Well, the
biggest test of the IPO waters this past week shows that the demand is still
almost non-existent. Lucent spin-off Agere
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semiconductor and optical components, had wanted to raise $7 billion. The IPO
was hit with two price cuts and received a very chilly initial response when it
debuted on March 28. Agere was priced at $6 and only managed to raise $3.6
billion, and the stock is trading only a few cents above its IPO price.
Many would-be IPOs have chosen to postpone their offerings,
but with the case of Lucent, its Agere spin-off had to do with unloading a lot
of debt in order to avoid receiving a downgrade to junk status. Whatever the
reason for the timing, the Agere IPO reflects the monumental troubles that
continue to plague telecom and technology.
Recent IPOs: LoudCloud
Marc Andreessen was the wunderkind behind Netscape and
its 1995 blow-out IPO which set in motion the Internet Revolution, but Marc’s
recent launch was a dud. LoudCloud
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company that fills in the gap between data centers that provide basic
web-hosting services and Internet consulting firms that help design and build a
company’s website. The company has a blue-chip list of customers
that include names like Ford Motor, USA Today and Blockbuster. The company has
a great team, high-level VC backing, and a compelling story.
Unfortunately, LoudCloud’s timing was about a year too late, and the market is
demanding much more than a story these days.
LoudCloud sold 25 million of its 73 million shares
on March 9 for $6, and the
stock closed at 6 9/16 on the first day of trading. The IPO raised $150 million
and that gave the company a market cap of $439 million. LoudCloud sank as low as
3 7/8 in March and ended the month 5 23/32. Is LoudCloud worth more than that? The
market right now says no, but keep in mind that had this company debuted last
year it probably would have opened up over a one hundred dollars per share.
Obviously, LoudCloud will remain under a tremendous amount of pressure to become
profitable before they burn through the $100 million they have in cash. Few
companies will likely ever get the benefit of the doubt like most Net stocks did
during 1999-2000, but the fact that LoudCloud provides a valuable service to
large companies that want to use the Internet makes them worth following.
Blue Martini Feeling Blue
Another IPO casualty that actually caught the tail-end of the bubble in tech
was Blue Martini Software
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and products that help companies build branding relationships with customers. It
opened at 43 and actually traded as high as 77 5/8 in August before succumbing
to the tech meltdown. It gradually sank since August and closed March 30 at 2
3/4. Like every other tech, Blue warned that the upcoming quarter’s revenues
would fall short of expectations and that its losses would be bigger than
expected. BLUE fell below 2 on the news.
At these levels, Blue Martini trades at a market capitalization of around
$160 million, but has about $130 million in cash. Its CFO said the company burned
through $15 to $17 million in the first quarter, and that he believes that the
company can survive for seven to nine quarters without having to raise new capital.
Revenues for Blue are expected to be about $19 to $20 million for the quarter and
losses are expected to be about 22 to 25 cents per share.
I use Blue Martini as an example because there are dozens of companies
just like it that are trading near cash
levels. The future of many of these companies is now in doubt. Most will vanish, but some may
survive, and by looking at balance sheets and business models, you may be able
to find some uncommon values. When a company’s stock makes an extraordinary
decline — whether it’s due to overall market conditions, flaws within their own
business plan, or perhaps, competition — it’s the fundamentals that will tell
you who might battle their way back from their crushing lows.