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IPO–Public Offerings Taking the Heat From Market Volatility

If the window for initial public offerings hasn’t slammed completely shut, it’s at least nowhere near as wide open as in months past.

Between January 1999 and April 2000, 21 Los Angeles-based companies went public through IPOs. Not surprisingly, all but three of them are technology-related.

Also, only three of the 21 made it out the door so far this year b2bstores.com Inc., L90 Inc. and ARTISTdirect Inc. and all are Internet ventures.

So how have they fared? As of April 25, only six of the 21 were trading significantly above their initial offering price. The rest were below their offering price most of them well below.

“Volatility isn’t good for IPOs,” said Byron Roth, chief executive of Roth Capital Partners, an investment banking firm based in Newport Beach. “When investors see uncertain market conditions, sometimes the last one in becomes the first out. They’ll tend to hold onto their core companies and kick out those last buys, which isn’t good for new issues.”

L.A.’s worst-performing IPO since January 1999 is Los Angeles-based public records provider U.S. Search.com, down 75.5 percent. Not far behind is Hollywood-based JFAX.com, down 75.3 percent from its offering price. Other laggards include Saticoy-based Seminis Inc., down 70.8 percent; Santa Monica-based eToys Inc., which dropped 67.3 percent; and Launch Media Inc., down 50.2 percent.

The biggest gainer so far is Pasadena-based search engine GoTo.com, which has risen 137.5 percent since its offering, hitting $35.88 a share on April 25. On its heels is online banking service Digital Insight Corp. of Calabasas, climbing 133.3 percent to $38.50 as of April 25.

“There’s a lot of companies out there with strong business models who will only continue to reap the benefits of the Internet,” said Frank Creer, managing partner of venture capital firm Zone Ventures.

Even winners are losers

Still, even the best-performing local IPOs are down from stratospheric highs: GoTo’s 52-week high was $114.50 and Digital Insight’s was $86. The dramatic fall-off, according to many observers, signals that the New Economy model has worn out its welcome.

“The demarcation is earnings and not earnings if you’re not making any money, the market is brutal,” said Frank Baxter, chairman and chief executive of Jefferies & Co.

Further, experts say, companies going public in the future may not see the kind of initial run-ups they did last year, at least for now.

“In the past you saw speculative excesses as investors bought up IPOs just because they were IPOs, without reading the prospectus. You won’t see those kind of pops,” said Todd Springer, managing director of venture capital firm Trident Capital Inc.

That’s not preventing an optimistic few from filing for IPOs in L.A. County.

Perhaps the most anticipated recent filing came from Pasadena-based Idealab. The dot-com industry’s most-prolific incubator, which develops and launches startup tech companies, hopes to raise $300 million through its upcoming public offering. Despite the downturn for IPOs, Springer thinks companies like Idealab will be met with open arms by Wall Street.

“Right now bankers are performing triage. They’re dividing the pipeline into three piles And it’s the top tier of potential prospects that will hit the market pretty quickly when the window opens,” Springer said.

Trying to fix problems

Meanwhile, some of L.A.’s newly public companies are retooling their models to boost investor confidence. EToys just launched an $8 million advertising campaign to promote its summer products and it expects to enter higher-margin product categories later this year, including sporting goods and apparel. Calabasas-based NetZero, a free Internet service provider, is entering into partnerships, including a recent investment from Qualcomm Inc.

John Bohan, chief executive of L90, an Internet advertising firm, remains calm amid the market fluctuations, even with the company facing a projected first-quarter net loss of $5.3 million, far more severe than the $700,000 net loss in the year-ago quarter.

Bohan has watched his company’s share price drop 47 percent through April 25 since its offering in January. But the enterprise has grown from 113 employees four months ago to 145 today, and has launched a new division focusing on the Latino market.

“It’s part of the short-term market swings that we’re all facing. The stock price has little indication of long-term value of a company,” Bohan said. “We have a model to return to profitability in 2002, so we feel comfortable with losing now in exchange for market share.”

How Local IPOs Have Fared

Out of 21 IPOs, only seven are trading above initial offer price.


Offer Offer Recent Value

Company Symbol Date Price Price* %Change (millions)

GoTo.com Inc. GOTO 6/18/99 $15.00 $35.65 +137.5 $1,581.7

Digital Insight Corp. DGIN 10/1/99 15.00 35.00 +133.3 494.1

Korn Ferry InternationalKFY 2/11/99 14.00 27.31 +95.0 978.5

GenesisIntermedia.com GENI 6/14/99 8.50 15.63 +83.8 85.2

Stamps.com Inc. STMP 6/25/99 11.00 14.75 +34.0 512.9

Careside Inc. CSA 6/16/99 7.50 9.00 +20.0 45.8

NetZero Inc. NZRO 9/24/99 16.00 16.06 +0.3 1,652.1

Homestore.com HOMS 8/5/99 20.00 19.50 -2.5 1,307.2

Skechers USA Inc. SKX 6/9/99 11.00 9.00 -18.1 330.7

Infonet Services Corp. IN 12/16/9921.00 13.75 -34.5 2,319.6

Digital Lava Inc. DGV 2/17/99 15.10 9.50 -37.0 41.8

Pacific Softworks Inc. PASW 7/30/99 5.25 3.28 -37.5 23.4

L90 Inc. LNTY 1/28/00 15.00 7.94 -47.0 151.4

Launch Media LAUN 4/23/99 20.00 0.94 -50.2 135.9

B2bstores.com Inc. BTBC 2/11/00 10.00 4.56 -54.4 65.4

ARTISTdirect Inc. ARTD 3/28/99 12.00 4.69 -60.9 174.8

eToys Inc. ETYS 5/20/99 20.00 6.53 -67.3 670.5

AdStar.com ADST 10/7/99 15.50 4.75 -69.0 108.0

Seminis Inc. SMNS 6/30/99 15.00 4.38 -70.8 261.7

JFax.com Inc. JFAX 7/23/99 0.50 2.34 -75.3 76.9

US Search.com SRCH 6/25/99 9.00 2.19 -75.6 191.6

*As of April 25 Source: IPO Monitor

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