IPO Report: Razorfish Takes Off

The latest Net newbie, Web consulting firm Razorfish, made a splashing debut Tuesday, its inaugural trading day.

Razorfish (RAZF) opened at 35 1/2, a 122 percent premium above its initial offering price of $16. Investors quickly drove shares to a high of 38 7/8. By late morning, the new issue traded at 34 1/2.

The IPO consisted of 3 million shares, raising $48 million in the public market. Credit Suisse First Boston led the deal, helping to put an additional $120 million in stock value into the company by bumping up the IPO 45 percent on top of the original price.

The New York City company is a player in a very crowded market. Indeed, the business of Web consulting is a huge marketplace estimated to have grossed $2.4 billion worldwide last year and growing to nearly $33 billion by the year 2002.

"With regards to how crowded the space is - Razorfish was smart by locating itself in Manhattan where much of its success is a reflection of the media, advertising and consumer brand resources concentrated in this area," said Stephen Hall at Manhattan-based venture capital firm, Prospect Street Ventures.

"This sets them apart from other competitors that are not located here."

Differentiating the winners from the pack may also be the company's clients. Razorfish re-designed Charles Scwhab's (SCH) online trading system. A big job apparently given that Schwab accounted for 27 percent of the company's sales last year. Other clients include Theglobe.com (TGLO) and a user-interface for Road Runner, a high-speed online service. (Editor's note: CBS.com was a former client of Razorfish.)

Razorfish also has the support of a big backer. Manhattan-based Omnicom Group Inc. (OMC) will own 33 percent of Razorfish after the offering. Omnicom, which operates advertising agencies and offers market research and sales promotion programs generated $4 billion in sales last year. Omnicom edged down 9/16 to 76 3/4.

The company posted revenues of $13.8 million last year. Jennifer McBrien, analyst at Renaissance Capital, expects that number to grow by 55 percent. One uncertainty that McBrien points out is how Razorfish will make the transition from charging customers on a time-and-material basis to a fixed price model offered by rivals Proxicom (PXCM).

Last week, Proxicom braved the shaky Internet waters and still ended the day up 50-percent above its $13 a share IPO. Proxicom gained 1 1/16 to 19 7/16.

Revisions and new filings

• Lowestfare.com (FARE), the online discount travel services firm started by investor Carl Icahn, revealed in a filing that it's offering 7.5 million shares between $11 to $13, giving the company a $433 million stock market value. Upon completion of the offering, Icahn will own 79.2 percent of the company, according to NewsTraders.com.
• Mpath Interactive (MPTH), the Net software company raised its 3.9 million share offering by 18 percent to $50.7 million with a new expected price rang between $12 to $14 per share.

  The Mountain View, Calif.-based company was originally expected to between $10 to $12 share. BancBoston Robertson Stephens will lead the offering, with Wit Capital acting as electronic manager when the company's offering is priced on Wednesday.

  "Mpath brings a new dimension to Web site communities," said Randall Roth, analyst at Renaissance Capital. "Before we had static communities - but now it's really interactive."

  Mpath develops and licenses technology to create live community sites, which means visitors can have instaneous interaction. The company boasts over 2.6 million registered users, who generated 50,000 unique daily visits and stayed on for an average of more than one hour and a half each day. Based on the lengthy amount of time spent online, Mpath's audience is appealing to advertisers, who like to put their ads in front of so-called sticky audiences.

  Roth also points out that the company's business model is attractive because the revenue-stream is two-tiered. Just over half of the revenues are generated from proprietary software sales, while the other half is generated from the live community sites, including ad sales and some subscription fees.

• Musicmaker.com (HITS) is expected to raise $24 million. Investment bankers Ferris, Baker Watts Inc. expect to price 3 million shares between $7 to $9 later Tuesday.

  The Reston, Va.-based company makes custom CDs and downloadable music. Musicmaker licenses its music from record studios. "It's a great concept and they sell CDs at competitive prices," said Paul Bard, analyst at Renaissance Capital. "But the success of the company will be its ability to secure contracts from record labels to get access to more content and broaden its selection."

  The large record label companies have been reluctant to enter into the types of licensing arrangements that a company like Musicmaker depends on to expand its catalog of songs.

  The offering comes one business day after Santa Monica, Calif. -based Launch Media (LAUN) jumped 29 percent on top of its $22 IPO on Friday, its first day of trading. Launch Media fell 2 3/4 to 27 1/4 by late Tuesday morning.

  The company's site focuses mainly on unknown new artists who would appeal to teens and young adults. Launch also sends out a monthly CD-ROM to approximately 275,000 subscribers. Sales for Launch grew to $5.0 million in 1998, while losses ballooned to $13.4 million, or $16.07 a share, vs. year-ago sales of $3.1 million and losses of $6.7 million, or $7.89 a share.

Written By Bambi Francisco, CBS MarketWatch