IPO Market Takes A Step Back

The IPO market took another step back as Theglobe.com slashed the estimated price range of its offering to $8 to $10 a share, down from $11 to $13.

Theglobe.com, which allows members to create their own Web pages, still expects to sell 3.1 million shares in an initial public offering tentatively scheduled to price on Tuesday evening, with trading starting on Wednesday. Lead underwriter Bear Stearns originally was scheduled to price the deal on Monday for trading on Tuesday.

Healtheon, another high-profile Internet offering, also delayed its IPO a day and is now expected to price after the bell Tuesday. Healtheon, however, kept the price range of its deal at $8 to $10 and raised the size by about 722,000 shares.

But it was Theglobe.com's move to dramatically cut its expected offering price that had analysts a bit worried. "That tells you something," said Kathleen Smith, portfolio manager of Renaissance Capital's The IPO Fund. "That tells you they wanted to make this deal more attractive for investors."

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Smith said the performance of GeoCities (GCTY), the leader in the home-page-provider category, which has gained 24 percent since going public in August but is about 60 percent off its highs, is not helping Theglobe.com. "GeoCities has not been as hot as a lot of the other Internet companies -the portals," she said.

Investors may also be worried about the company's large losses and somewhat anemic sales. For the first half of 1998, the company lost $5.8 million on sales of $1.2 million, compared with a year-ago loss of $767,000 on sales of $208,000. "In tough markets, these things just don't fly," said Rick Johnson, portfolio manager of Columbia Management's small-cap fund.

Moreover, the company's Web site, which was the fourth-fastest-growing site in the first half of 1998, does not rank among the top 50 individual Web sites, according to the latest September from Media Metrix. According to Media Metrix numbers, Theglobe.com reached approximately 4.6 percent of Internet users on Monday, "just missing" the top 50 ist, according to Media Metrix spokeswoman Stacie Leone.

At an estimated $9 offering price, Theglobe.com will have an implied market cap of about $88.1 million, not including outstanding options, a valuation called "dirt cheap" by Renaissance Capital's Smith. "It was very inexpensive to begin with," she said.

However, Columbia Management equity analyst Brian Smoluch noted that Internet stocks like Theglobe.com "don't trade on valuation, they trade on psychology."

"This is definitely not a hot deal," he added.

This week was seen as pivotal for the ailing IPO market. In the past two months, only eight companies have gone public as market turbulence has kept many institutional investors out of the game. "Why buy a new IPO at an inflated price when you can go get an IPO from six months ago that's trading at half of what it started at?" Johnson asked.

Aside from Healtheon and Theglobe.com, Conoco, the DuPont (DD) oil spin-off that could become the biggest IPO ever from a U.S. company, is the only other major deal scheduled for this week.

"If these deals do well, then I think you could expect a mass number of deals ... now scheduled as 'to be announced' start to crystallize into actual offering dates," said John Fitzgibbon, editor of The IPO Reporter.

Smith agreed that all was not lost for the new issue market: "You have a limited amount of product [scheduled IPOs for the rest of 1998] and a market that's going up as the backdrop."

Written By Darren Chervitz