CurrentOfferings.com Story:

Internet firms join line for IPOs

Verne Kopytoff, SF Chronicle, Monday, May 10, 2004

Google, the leading search engine, has hogged the headlines since filing for an initial public offering recently. But it's not alone -- at least nine other Web sites are in line for their own Wall Street premieres in what could be described as a dot-com boomlet.

Diminutive firms ranging from the gay portal PlanetOut in San Francisco, to the Emeryville bookseller Alibris, to jewelry retailer Blue Nile in Seattle, have all filed papers to sell shares. But the question remains whether they have a brighter future than their failed predecessors, Pets.com, EToys and Webvan.

Analysts say that most of the current crop is stronger. The majority of the firms are turning profits, they pointed out, unlike all those Web sites that went public in the late 1990s and hemorrhaged money.

"There is more substance to the business models of these companies," said Paul Bard, an analyst for Renaissance Capital, an investment company that focuses on IPOs. "That's not to say that they are going to be great investments."

The sheer number of Internet companies poised to join Wall Street is part of a broader recovery in the IPO market. After a couple years of drought, firms in industries from biotech to health care and restaurants to software have filed to sell shares this year.

Since the beginning of the year, 138 companies have filed to go public, according to Renaissance Capital. That's more than all of 2003, when 105 companies filed.

The Internet companies that have started the process to become publicly traded represent a broad range of the Web industry.

In addition to PlanetOut, Alibris and Blue Nile, there are online advertising firm Claria in Redwood City, anti-spam fighter Brightmail in San Francisco and the comparison shopping engine Shopping.com, which is based in Israel.

Others are Advertising.com, an online ad company in Baltimore; Greenfield Online, an Internet survey firm in Wilton, Conn.; and ECost, a spin-off of computer seller PC Mall in Torrance.

Analysts placed Blue Nile at the top of the list in terms of quality. The company, which had $27 million in profit on $128.9 million in sales in 2003, is expected to sell its shares within a couple of weeks.

Bard praised Blue Nile for fulfilling the original promise of e-commerce. The company, he emphasized, has kept costs lower than competing brick-and- mortar stores such as Tiffany & Co., the venerable luxury jewelry chain.

Following close behind in expected prospects, according to the analysts, are Shopping.com and Advertising.com. Both companies are profitable and could benefit from the infusion of cash from an IPO. Spending possibilities include adding products and acquiring other companies, the analysts said.

PlanetOut, which has 3.3 million active members, generated the most skepticism. It lost $752,000 on revenue of only $19 million in 2003.

"This is probably a niche market," said Tom Taulli, co-founder of Current Offerings, a Web site that tracks IPOs. "It's tough to make a case for a company like this to go public."

Significant caution was also voiced about Claria, a pop-up advertising firm formerly known as Gator. It is highly profitable, with $34.9 million in earnings on $90.5 million in revenue in 2003.

But Claria faces many lawsuits. Many consumers have complained about unknowingly downloading the company's software onto their computers and then being bombarded with ads.

A new Utah law that took effect last week essentially bans Claria in that state. Other states, plus the federal government, may follow with legislation that could also hurt business, the company disclosed in its filing.

"The litigation certainly hangs a cloud over it," said Taulli, who wrote a book titled "Investing in IPOs." "I've never seen so much litigation at a single company. It literally went on for pages and pages."

Google, based in Mountain View, is the most anticipated of the lot, of course. It plans to raise up to $2.7 billion, attaining a market capitalization of up to $25 billion, according to analysts.

Google's planned IPO raises interest in the industry as a whole, giving a slight edge to other Internet companies on the same path, investment experts agreed.

"It adds a little spark to the dot-coms," Bard said. "But we were starting to see a recovery before Google filed."

Rashi Glazer, a business professor at UC Berkeley who follows the Internet industry, cautioned that there could be a downside to riding Google's coattails. If Google stumbles either because of its own business or because of external events such as terrorism, the other dot-coms going public may be punished.

The rush for Internet companies to sell shares invites the question of who will be next. Executives at private firms such as Tickle, a social networking site in San Francisco, and Sidestep, a travel search site in Santa Clara, report getting frequent calls from investment bankers who want to sign them up.

"Being a public company is certainly something that may be in our future, " said James Currier, Tickle's chief executive. He went on to say that the process is costly and time-consuming, involving a lot of details, such as hiring and board matters.

Besides Tickle, analysts said that IPO candidates include the comparison shopping search engines BizRate.com in Los Angeles and NexTag in San Mateo.

No matter what the company, analysts cautioned that investing in IPOs is risky. Shares of newly public firms fluctuate wildly, and the underlying businesses are especially vulnerable to bigger competitors, the analyst said.

One worry market observers repeated is that the current flush market for dot-coms may again devolve into Internet mania. Venture capitalists could begin pushing companies to go public that really aren't ready.

A telltale sign will be when investors begin to see a lot of money-losing companies with limited growth prospects filing to go public, observers said. The risk is that those companies might cast a pall over stronger Web sites that also want to go public.

"We may get into a little bit of a bubble again, because there is still a lot of pent-up demand," said Glazer, the Berkeley professor. "I think people are a little bit more sober to not jump on the bandwagon again, but it may get irrational."