Covering Internet IPOs can be ridiculously easy. Grab a few facts, watch the tape, fiddle with a few excited adjectives. Presto: instant feel-good story. Getting real context behind the market's volatile goings-on is another story - and one that the media has a tougher time with.
Given what reporters find when they wander off from the party, it's no wonder. Scratching beneath a hot Internet IPO turns up plenty of questionable assumptions. Take car dealers. In an analysis filed at the close of business Wednesday (the day after AutoWeb's debut stock price doubled and the eve of competitor Autobytel.com's initial sale), BusinessWeek Online's Amey Stone raised an important question: Why are virtual dealerships any more palatable than the brick-and-mortar showrooms their polyester-clad counterparts stalk? Not surprisingly, the answer is they're not. The services feed sales leads to dealers. Buyers still wind up haggling over the phone with stressed-out reps.
Standard & Poor's IPO analyst Mark Basham told Stone he wouldn't hold on to the online car hawkers' stocks for long. Neither would Internet Fund's Ryan Jacob. A dealer is a dealer, and consumers want the loathsome middlemen out of the car-buying picture. Jacob told Stone: "Right now, auto buying on the Web is not eliminating dealer contact, which is what the consumer would clearly prefer." Somewhere along the line, overzealous Net investors forgot the long list of reasons car peddlers are the constituency everyone loves to hate. The real killer stocks, according to Federated Investors (FII) analyst Trent Nevills, will likely be the next-generation sites that eliminate the sticker game and allow factory-direct buying.
On the same day AutoWeb picked up a $1 billion market cap, analyst and Red Herring Online scribe David Simons sized up the impact of swollen IPO valuations on the portfolio of Internet darling CMGI. Internet money just doesn't buy what it used to, he observes in a typically bearish take on the cyber rainmaker. For $2 million, CMGI scooped up all of Lycos (LCOS) in 1995, and 38 percent of GeoCities a year later. In 1998, CMGI's $1.5 million investment in soon-to-go-public Critical Path bought it a flimsy 5 percent. While CMGI investors anxiously eye Critical Path's IPO, Simons writes that "the math is less exciting than the imagination provoked by the story." Say initial trading gooses Critical Path's stock price to twice the projected $9 to $11. CMGI's puny slice will soar in value 2,900 percent - a whopper of a return, Simons calculates, but far from the Lycos and GeoCities gains that have wowed CMGI shareholders. Assessing the real value of CMGI gets knottier given the company's vast holdings in AtVenture Funds, which it operates as private venture capital funds.
One recipient of AtVenture Funds is Raging Bull, the online market analysis and discussion site. In a story this week, Raging Bull stock scribe Matthew Ragas eyeballs NBC's long rap sheet of Net investments and wonders whether the Peacock network will fan out a dot-com IPO. Turns out the must-see network's MSNBC.com joint venture, minority investment in Snap (and an option to increase its stake to 60 percent) and 5 percent CNET (CNET) stake are just the beginning. GE's crown jewel has also muscled in on ownership stakes at iVillage (IVIL), TalkCity, Autobytel.com, USWeb (dossier)/CKS and Intervu, to name a few. If iVillage, with $76 million in losses and an ex-CFO crying about accounting irregularities, can amass a $1.85 billion market cap in one day of trading, Ragas muses, imagine how the Street might react to the glittery IPO of an NBC Interactive? Stay tuned for details of an NBC.com offering later this year. Just don't squint too hard at the fine print.
Off to the Races With Net Car-Buying Stocks?
Business Week
CMGI: Don't Do the Math
Red Herring
NBC.com IPO - Fact or Fiction?
Raging Bull
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