Evoking memories of sizzler Netscape Communications, Broadcast.com's shares exploded onto Wall Street with the best-ever opening for an intial public offering in the United States.
Broadcast.com's stock (BCST) opened for trading at 68 1/4 Friday, more than 279 percent above the stock's $18 offering price. That debut dwarfed the August 1995 performance of Netscape, which traded at a 154 percent premium to its $28 offering price. Chip maker Broadcom rose 158 percent on its first trade earlier this year.
"Wow!" exclaimed IPO Value Monitor's Ryan Jacob after hearing how the stock opened. "This just shows that interest in Internet issues is alive and well, and that could be the understatement of the year."
Broadcast.com shares reached a high of 74 before closing at 62 3/4. Although below the first-trade price, that 249 percent one-day gain above the offering price also places Broadcast.com at the top of the heap, edging Secure Computing Corp., whose stock gained 247 percent above its $16 offering price on its first day of trading back in 1995, according to data from Securities Data Corp.
The Dallas aggregator of audio and video streaming content priced its 2.5 million-share initial public offering at $18 each, above the $11 to $13 range listed in initial filings with the Securities and Exchange Commission. It's usually a sign of strong demand when a company can price brand-new shares above the expected range.
Observers expected the stock to open much higher than 18. But not this high. John Fitzgibbon, editor of the IPO Reporter, had predicted earlier in the week that the stock would open for trading "as high as $30."
Some questioned whether lead underwriter Morgan Stanley Dean Witter underestimated demand for Broadcast.com, an Internet company. Morgan Stanley Dean Witter raised $45 million for the company, excluding fees.
The market capitalization of the company, which generated $3.2 million in sales for the first three months of the year, stands at more than $1 billion, not including outstanding options or the underwriter over-allotment.
To be sure, raising the offering price for an IPO is a delicate task. Lift the offering price too high, and an underwriter might discourage investors and fund managers from buying the shares.
Not all analysts are particularly gung-ho about the Broadcast.com offering, especially at a price that values the company at more than 183 times 1997 sales. About 15 percent of the company's sales last year came in the form of bartered advertising.
Jacob, who in addition to his work as research director at IPO Value Monitor is also the portfolio manager of The Internet Fund in New York, said bandwidth limitations will hamper the company's short-term prospects, while access to content may be a problem in the future. "There are serious question marks here," said Jacob.
Broadcast.com has the rights to broadcast games featuring most major professional and college sportteams and leagues, along with content from more than 300 radio stations, 200 record labels and 17 television networks. Few of its agreements are exclusive, however, and competitors such as RealNetworks have relationships with many of the same entities.
Jacob pointed out that rights to content are likely to become more expensive as the Internet grows faster and more pervasive. He pointed to the billions of dollars that television networks have spent to acquire or maintain rights to such programming as National Football League games and E.R.
Undaunted by PointCast's IPO withdrawal, a number of Internet companies are joining Broadcast.com in preparing initial offerings. A Goldman Sachs-led IPO for GeoCities could draw even more interest than Broadcast.com's when it makes its debut next week.
By Darren Chervitz and Thom Calandra