CurrentOfferings.com Story:

Online retailer retreats on IPO

By Mark Schwanhausser, Mercury News, May 23, 2004

If anyone is worried that Google mania could spur a new Internet bubble, an obscure East Bay company might have eased that fear Friday.

Alibris, the Emeryville online seller of used and hard-to-find books, canceled plans to sell its stock to the public. The main reason: The not-yet-profitable company couldn't entice enough investors to bid high enough for stock in its initial public offering, known as an IPO.

That, some experts say, is a warning to the companies -- half of them unprofitable, like Alibris -- that are planning IPOs.

"Investors now are battle-scarred, battle-weary and have very long memories as it relates to the woes of the bubble," said David Menlow, president of IPOfinancial.com. "It was like a chewing-gum bubble that burst, and we as investors wear the residue of the sticky mess as a reminder."

Alibris had planned to sell 2.5 million shares to raise up to $35 million through a relatively new IPO process known as a Dutch auction. That's the same method Google will use on a much bigger scale for its upcoming IPO. Alibris was scheduled to set an opening price Wednesday between $10 and $14 per share.

But when executives surveyed the auction room run by their underwriter, WR Hambrecht, they found few bidders and little enthusiasm for their not-yet-profitable company. Alibris Chief Executive Marty Manley wouldn't disclose how low the bids were, but he said, "You can conclude we did not walk away from the pricing because it was too high."

"IPOs work," Manley added, "when the market is ready for the company, and the company is ready for the market. I don't believe there is deep receptivity for companies that are not profitable."

Some signs could suggest the IPO market is heating back up, however. Nearly 200 companies are set to go public, the highest total since 2000. Stock in Blue Nile, the online jeweler backed by Microsoft co-founder Paul Allen, has jumped 60 percent since it went public Thursday, closing Friday at $32.82.

Last year, only about one out of four companies dared to go public while still turning a loss. This year, half of the first 50 companies doing IPOs have been unprofitable, according to Renaissance Capital. In the Bay Area, four of the seven IPOs this year involve money-losing start-ups, compared with 84 percent of the 85 IPOs at the peak of the mania in 1999.

Although the percentage of money-losing companies going public is rising, experts note that most are in the biotech industry, not the Internet. Three of the four unprofitable Bay Area IPOs, for example, are in the biotech sector.

Before investors will buy Internet stocks, they're looking harder under the hood than they did during the bubble, says Tom Taulli, founder of Currentofferings.com. For example, Blue Nile was coveted because it had proved it could turn a profit.

"If I'm an investor, why do I want to put money in Alibris when I can put it into Blue Nile?" Taulli said. "If I'm not a profitable company and can't create some buzz in the marketplace, I would be concerned."