Internet IPO Xooms On Debut
Xoom.com shares surged 146 percent in hectic trading on the company's stock-market debut, following in the successful first-day footsteps of rival online community developers Theglobe.com and GeoCities.
Xoom.com's stock (XMCM) opened at 31, with two trades of 5,000 shares crossing at that price, but it quickly gapped up to 39, apparently as one of the market makers was willing to buy the stock at that price.
Shares then bounced around within that 31-to-39 range for most of the day and closed at 34 7/16, a big premium on the $14 offering price. More than 16 million shares changed hands - four times the number of shares sold in the IPO.Even accounting for possible double counting of shares, that's a lot of trading, analysts said. "[The heavy trading] just doesn't make any sense," said David Menlow, president of IPO Financial Network, which predicts opening premiums for new issues. "It's too much for the system to handle."
Infinity Broadcasting is likely to continue the momentum in the reinvigorated IPO market Thursday. It priced its 140 million-share IPO at $20.50 Wednesday afternoon. The estimated pricing range was $19 to $22 a share. Merrill Lynch is the lead underwriter for the radio and outdoor advertising unit of CBS (CBS), but 22 other banks are also in on the deal. (Editor's note: CBS is a half-owner of MarketWatch.com.)
With a registered member base of more than 4.8 million and traffic placing it as the 15th-busiest site on the Web in November, Xoom.com was widely expected to provide the IPO market with one of the most explosive debuts of the year, according to analysts.
"Short term, you can't fight the tape on this one," said Kathleen Smith, portfolio manager of Renaissance Capital's IPO Fund (IPOSX).
Xoom.com's first-day performance was viewed by at least one observer as something of a disappointment. John Fitzgibbon, editor of The IPO Reporter, said he expected the stock to open in the 40-50 range and wondered if IPO and Internet mania might be waning.
"How much longer can you run like this?"/B> he asked. "We've got a greyhound out there, running like the devil, but the greyhound won't run forever."
The debut certainly fell well short of the record-setting 606 percent gain that Xoom rival Theglobe.com experienced on its first day of trading in November. Bear Stearns, an investment bank that hadn't done many Internet-related deals in the past, handled both offerings.
Still, the folks at Xoom.com probably aren't complaining, considering that the offering almost didn't get off the ground. The San Francisco-based company filed for an IPO in late August, right when the new-issue market began to dry up. Back then, the company was just named Xoom Inc., sans the illustrious "dot com" suffix.
The deal languished in the pipeline until the IPO market roared back last month with successful debuts from EarthWeb (EWBX) and Theglobe.com (TGLO). The company then amended its filing with the Securities and Exchange Commission as Xoom.com, setting the offering plans back in motion.
At a $14 offering price, the company had a market cap of $218 million, including outstanding options and the additional 600,000 shares the underwriters can sell to customers if needed. At Wednesday's closing price, the company was worth more than $530 million.
GeoCities, which rose 119 percent on its first day, is worth $1.1 billion, while Theglobe.com is valued at about $385 million. Theglobe.com announced Wednesday that it has signed on 74 new advertisers since Oct. 8.
According to Media Metrix's November numbers, the Xoom.com sites received more than 8.1 million unique visitors in October, good for No. 15 but well behind GeoCities' (GCTY) 30.8 million unique visitors. Competitors Tripod and Angelfire, owned by Lycos (LCOS), were also in front of Xoom. Theglobe.com did not make Media Metrix's top 25 list.
Media Metrix measures Web traffic by tracking the usage patters of a sampling of Internet users.
Going by its own numbers, Xoom.com is by far the largest community site, with more than 4.8 million members, a number that the company said in the prospectus is growing by about 20,000 a day. GeoCities, by comparison, said Monday that it had reached the 3 million-member mark
While Xoom.com's membership numbers have generated some controversy, portfolio manager Ryan Jacob said the site's traffic growth has been undeniably impressive. "To grow at the rate they have without really spending any money is amazing," he said.
Indeed, most of Xoom's traffic has resulted from word-of-mouth publicity. A portion of the proceeds from the IPO will be used to market the Xoom.com name through online ads as well as radio and TV spots.
To join Xoom, a user must give the company his or her name and e-mail address. (A limited number of other demographic questions are asked, but answering is optional.) In return, members get some space on Xoom's servers to create their own Web pages, a free e-mail account and access to a rather eclectic assrtment of software, streaming classic movies and clip art.
The major difference between Xoom and its competitors is the site's focus on e-commerce and direct marketing. It sends out regular e-mail advertisements to all its members touting specific product offers.
These products are actually housed in an Orem, Utah, warehouse operated by Xoom partner Banta, which Smith said exposes the company to inventory risk. The company says its direct-marketing expertise allows it to approximate demand for any given offer, thereby minimizing such risk.
"They may be very good at managing [the inventory], but ... we felt the advertising model would be more attractive," Smith said.
Of the $3.4 million the company generated in the first nine months of the year, 69 percent came from e-commerce sales. The company has lost $4.4 million so far in 1998, compared with a loss of $2.7 million in the same period a year earlier.
The company says in its prospectus that it "expects electronic-commerce revenue to continue to account for a large percentage of net revenue as it expands its product offerings and increases its direct-marketing response rates through better member demographic information and targeting of product offers."
Most of the other community sites are exploring the addition of e-commerce or direct-marketing functionality to extract more revenue out of their large user bases. Theglobe.com, for instance, will be launching a program called GlobeDirect "in time for Christmas," said company spokeswoman Esther Loewy.
Written By Darren Chervitz