Initial public offerings: Investors in e-commerce start-ups discovered that soon after they went public, these stock issues paid off like a hot progressive slot machine in a trendy Vegas casino. But like high-rolling gamblers everywhere, investors gave back much of their profit to the house if they failed to walk away quickly with their profits after hitting the jackpot.
Riding the crest of a high-tech Nasdaq wave that peaked in early March, stocks of closely watched Web integrators and software companies such as Agency.com, Navisite Inc., Digex Inc. and others that went public during the past 12 months rocketed in value, at least for awhile. Most quadrupled or quintupled in price,and in some cases orbited in value to 10 times or more their initial IPO price, unleashing a bonanza of newfound wealth to founders and stunned investors.
Alas, those valuations were not to last long. When the Nasdaq market underwent its long-predicted correction this spring, most of these e-commerce stocks fell back to earth with a thud. Amid the carnage, many hit their lows for the year, with some actually falling below their IPO price.
More recently, most of these companies have struggled back above the water line, with stock prices that are still well below their peak, but nonetheless above their Nasdaq-crash low point. Timing, after all, is everything. The e-commerce integrators have had plenty of company in their strange odyssey during these past 12 months through stock peaks and valleys.
According to data from Thomson Financial Securities, since 1995, Internet companies have raised more than $150 billion in capital from investors, counting common stock and debt offerings. More than $34.8 billion of that total has come through common stock offerings alone through the first five months of this year. (Another $10 billion was raised through debt offerings.)
Last year, an estimated $35 billion was raised through Internet common stock offerings, and more than $20 billion through debt and preferred stock offerings. Put the numbers together and that means about $100 billion of the $150 billion in capital raised during the past five years has come in the past 18 months. That's a lot of Internet IPO money.
Of course, e-integrators helped tremendously in igniting that investment boom. Here are some examples of the best IPO offerings in the Web integration space in the past year.
AGENCY.COM LTD.
IPO Date: Dec. 8, 1999
IPO Price: $26
Recent Price: $22
Price Range: $12 to $98
Annual Sales Growth: 231 percent
Agency.com captures the trend affecting many of the stocks in this space perfectly. The New York-based company, which offers interactive business, marketing, consulting, brand management and other e-business services, set its IPO offer at $26. Trading opened at $91 per share and by day's end, the stock had slipped back to $76, nearly a 300 percent return for those lucky investors able to get in on the ground floor. The stock has since peaked at $98, fell to less than half its IPO price during the Nasdaq meltdown and has now recovered, at least a bit, though it has a long, uphill climb to get to that very first opening trade. Still, the company has attracted a great deal of attention for its brand management and Web site design. It has also attracted a roster of top clients such as Compaq Computer, Nike, entertainment giant Viacom and clothing manufacturer Benetton. Advertising giant Omnicom owns nearly 47 percent of the company.
APPNET INC.
IPO Date: June 18, 1999
IPO Price: $19
Recent Price: $41
Price Range: $8.65-$71.65
Annual Sales Growth: 520 percent
What's the best measure of a successful IPO? Perhaps it is getting acquired.
That is precisely the situation with AppNet Inc., a Bethesda, Md.-based company which develops Web sites and handles a variety of Web services, including interactive marketing and back-office solutions. Almost precisely one year after its IPO, AppNet announced that it reached an agreement to be acquired by CommerceOne, which will issue 0.8 shares of its own stock for each outstanding share of AppNet. The deal will allow Commerce One to increase its senior project management and will also provide additional strategic consulting expertise and interactive marketing services. Ken Bajaj, AppNet's chairman, described the acquisition as "a potent combination of Commerce One e-commerce applications, AppNet Internet professional services and Commerce One professional service partnerships."
BREAKAWAY SOLUTIONS INC.
IPO Date: Oct. 6, 1999
IPO Price: $14
Recent Price: $32
Price Range: $7.00-$85.50
Annual Sales Growth: 150 percent.
Breakaway Solutions calls itself a "full-service provider" of e-business solutions that allows enterprise companies to capitalize on the potential of the Internet. The business services it provides include process and strategy analysis; e-commerce system development and third-party application hosting. The Boston company, led by President and Chairman Gordon Brooks, has been growing through a strategy stressing acquisitions as well as alliances with large companies such as Cisco Systems and Sun Microsystems. Investment firm Internet Capital Group owns about 40 percent of the company, which reported a net loss last year of $10.4 million on revenues of $25.4 million. At its peak, the stock price soared to six times its IPO price, and unlike some competitors, on the way down, the stock still managed to stay above the initial offering price.
C-BRIDGE INTERNET SOLUTIONS INC.
IPO Date: Dec. 17, 1999
IPO Price: $18
Recent Price: $20
Price Range: $14.50-$65
Annual Sales Growth: 354 percent
C-bridge has seen its revenue balloon, but it losses grow larger as well. That probably helps explain the swinging stock price, which reached a new low as recently as mid-June. The Cambridge, Mass., company is a full-service provider of Internet applications and e-business solutions. For the three months ending in March, revenue totalled $12.2 million, up from $2.4 million. However, net losses grew to $990,000 from $255,000, a result of increased headcount and a large compensation expense. Even so, the client roster is growing and the demand for Internet professional services is on the rise, too. The stock price has bounced off its low, but like many of its competitors, still way below its high. One interesting point of differentiation: C-bridge operates an education "institute" that offers senior executives education services for developing e-business strategies.
CYSIVE INC.
IPO Date: Oct. 18, 1999
IPO Price: $17
Recent Price: $28
Price Range: $8.50-$63.00
Annual Sales Growth: 178 percent
This Reston, Va.-based firm specializes in building custom e-business systems for Global 2000 customers such as Cisco Systems Inc., AT&T Corp., First Union and Qualcomm Corp. The software engineering firm designs and builds highly customized systems that support large e-business operations. "The essence of what we do is software development," says President and CEO Nelson Carbonell, who started the company in his cellar. "But the result of what we build is a combination of custom software and a series of other technologies and other applications that are integrated to that software to allow it to accomplish its task." The company's stock has recently fallen way off its high, but it remains comfortably below its IPO price, despite an unexpected drop in late June.
DIGEX INC.
IPO Date: July 30,1999
IPO Price: $17
Recent Price: $85
Price Range: $14-$184
Annual Sales Growth: 165 percent
Digex shareholders had to be happy when the stock closed up 30 percent from the IPO price on the first day of trading. However, the best was yet to come: Digex shot up 1,200 percent when the Internet stock frenzy hit its peak. Why such a lofty premium? Probably because of its stellar customer base and roster of technology partners. Digex, headquartered in Beltsville, Md., hosts Web sites and applications and provides firewall management for more than 550 companies such as Nissan, J. Crew and Forbes. It has formed strategic alliances with the Holy Trinity of Web computing: Cisco, Intel and Sun. And it operates two company data centers with more than 1,300 servers. What's not to like? Company CEO Mark Shull must have investors convinced. Even with the recent sell off, Digex shares have quintupled in just about one year.
INFORTE CORP.
IPO Date: Feb. 19, 2000
IPO Price: $32
Recent Price $50
Price Range: $21.25-$100.12
Annual Sales Growth: 124%
Inforte Corp. hit the public market just about the time Internet stocks were steaming toward their peak. Predictably, it soon tripled in price. (It ended its first day at nearly $73, in fact.) However, the Chicago-based company hasn't been immune to the resulting stock swoon: Its share price has struggled to stay above its February IPO price. Even so, Inforte stands out because it actually made a profit: The company reported 1999 net income of $2.3 million on sales of $30.1 million. What's Inforte's secret? Its broad approach. Inforte provides integration services, strategic services, consulting and Web site design. The client roster includes media goliath Primedia, retail giant CompUSA, and French networking monolith Alcatel. CEO Philip Bligh owns about one-quarter of the company; all employees also are shareholders. Will Wall Street come around?
LANTE CORP.
IPO Date: Feb. 11, 2000
IPO Price: $20.
Recent Price: $24.50
Price Range: $11.75-$87.50
Annual Sales Growth: 114 percent
Coming straight up against competitors such as Sapient, Razorfish and MarchFirst isn't a task for the faint of heart. But Lante, and its President and Chief Executive Rudy Puryear, have shown they are made of strong stuff, despite the stock market's recent annoyance with Internet firms. The company specializes in creating business marketplaces for buyers and sellers, an especially hot niche during the past year, and has had Microsoft as a client since 1995. The stock nearly tripled (closing at $54) on its first day of trading; since then, despite reaching new highs (and then a new low) the excitement has ebbed. However, Lante has a rich history by computer industry standards--it was founded back in 1984 and transitioned to Web services 12 years later--so there still may be plenty of time for investors to find their reward.
NAVISITE INC.
IPO Date: Oct. 22, 1999
IPO Price: $14
Recent Price: $41
Price Range: $7-$164
Annual Sales Growth: N/A
With financial backers like CMGI (which owns 72 percent of the company), Microsoft and Dell, how could Navisite go wrong? The Andover, Mass.-based company launched as one of the hottest Net IPOs of the year, splitting and catapulting to 11 times its issue value until the March [MARCH OR APRIL?] Nasdaq meltdown brought the company quickly back to earth. Still, Navisite has proved a decent investment to those who got in on the ground floor, and its Web hosting, server management and applications development expertise seem likely to pay dividends when the New Economy comes into its own. Alliances with Oracle and BMC Software also seem like smart moves. Now all CEO Joel Rosen has to do is keep CMGI executives and Wall Street analysts convinced.
XPEDIOR INC.
IPO Date: Dec. 16, 1999
IPO Price: $12
Recent Price: $14
Range: $9.35-$34.75
Annual Sales Growth: 85 percent
Xpedior's emphasis on e-business consulting support seemed to ring true with investors as the company stock more than doubled on its first trading day. However, despite a customer base that includes IBM, Bell Canada and Citigroup, investor enthusiasm seems to have diminished, with the stock more recently trading about 25 percent above its IPO price and less than half of its high. Still, alliances with industry stalwarts like Sun, Hewlett-Packard and IBM can't hurt. And PSINet, a well-known ISP, owns 80 percent of the Chicago-based company. Company CEO David Campbell believes services such as data management, applications development and integration and consulting will pay off for investors in the long term.
