CurrentOfferings.com Story:

Blue Nile's IPO pops on debut

By David Shabelman, The Deal, May 20, 2004

Investors expecting Blue Nile Inc. to be a diamond in the rough sent the shares of the online jeweler soaring more than 30% in its debut Thursday, May 20, on Nasdaq. Blue Nile's initial public offering, which priced at $20.50 per share Wednesday night, soared to $25 at the opening of trading Thursday before climbing even further during the session. The shares closed at $28.40, a 38.5% gain on the day.

"A lot of people weren't sure if consumers would buy diamond rings over the Internet, but [Blue Nile's] sales over the past few years proved they will," said Eric Shimp, a trader at Prot�g� Funds LLC, an investment firm in Boulder, Colo.

For 2003 the Seattle-based company reported income of $11.3 million on sales of $128.9 million, compared with net income of $1.6 million on sales of $72.1 million in 2002. For the quarter ended March 31, it had a net income of $1.9 million on sales of $35.8 million.

"Last year they had a 79% increase in sales and another 49% increase for the first quarter this year," Shimp said. "It's just a strong-looking company."

According to one source close to the offering, the gains did not come as a surprise because the IPO was priced accordingly. "It was just a well-executed deal with a tremendous amount of demand," the source said. "The company wanted the deal to do well, and it did."

Tom Taulli, co-founder of Current Offerings Inc. in Newport Beach, Calif., noted that IPOs are often purposely priced low to create a pop and some excitement in the IPO on the first day of trading, as well as to reward institutional investors. "Pulling off an IPO is a big undertaking, and you have to make it worthwhile for investors to step up to the plate," he said.

Merrill Lynch & Co. served as lead manager of the offering. Thomas Weisel Partners LLC and Bear, Stearns & Co. were co-managers.

Blue Nile raised $57 million in equity financing, including $7 million in its most recent round of funding in 2001. Investors in that round included Silicon Valley VC powerhouses Bessemer Venture Partners, Integral Capital Partners, Kleiner Perkins Caufield & Byers, Lightspeed Venture Partners, Trinity Ventures and Seattle's Vulcan Ventures Inc. All had previously invested in Blue Nile.

Bessemer and Trinity Ventures each hold 15% stakes in the company that were worth $58.6 million at the $20.50 offer price. Both sold 248,644 shares in the offering with a value of $5.1 million.

Kleiner Perkins has a 9% stake with a value of $35.8 million before trading. The VC firm sold 187,480 shares in the offering with a value of $3.8 million.

Officials at Blue Nile did not return calls seeking comment. Officials at Bessemer, Trinity and Kleiner Perkins could not be reached for comment.

Blue Nile will use the proceeds from the offering for general corporate purposes, including the possible expansion or relocation of the company's fulfillment facilities, which are in Seattle.