An Internet-related company's new stock offering Friday set a record for a first-day price gain, capping one of the wildest weeks ever for the red-hot Net stock sector.
After being priced at $9 to initial buyers Thursday, shares of Theglobe.com Inc., an as-yet-unprofitable company that helps people set up World Wide Web pages, shot up 606% to end at $63.50 on Nasdaq on Friday.
The surge eclipsed the previous initial public offering one-day price record set by fellow Internet firm Broadcast.com Inc., which rocketed 249% on its launch date of July 17.
But illustrating how individual investors can lose money even in successful IPOs, Theglobe.com reached a high price of $97 early in the day, then fell in value through the day as small investors piled in.
The closing price was down 35% from the morning peak.
Still, the offering generated tremendous profits for individual and institutional investors lucky enough to get the stock at $9 and sell near its intra-day peak.
"I've had days similar to this, but this definitely feels good," said one well-heeled individual who sold his 800 shares near $90 for a fast $65,000 profit.
But the number of small investors who lost money in the stock appeared to significantly outweigh those who made money, as the price sank for most of the day after opening at $90.
"There's not a lot of people who have made money at this point in the aftermarket," said Paul Cook, who manages the NetNet Fund at Munder Capital Management in Birmingham, Mich., which specializes in Internet stocks.
Theglobe.com's founders, however, became extraordinarily wealthy immediately: Michael S. Egan, 58, the firm's chairman and former chairman of Alamo Rent-A-Car, holds 6.01 million shares now worth $382 million, according to Bloomberg News.
Todd Krizelman, 25, the company's co-chief executive, has a stake worth $47 million. Stephan Paternot, 24, the other co-CEO, has a stake worth $51 million.
Founded in 1995 by Krizelman and Paternot in their Cornell University dorm room, Theglobe.com has lost $11.5 million on $2.7 million in sales so far this year. It filed to go public in July but delayed the offering because of a weak market for new stock issues.
Its timing this week, however, couldn't have been better: It followed by two days an IPO by Net consultant EarthWeb, whose shares soared 248% on their first day. And earlier in the week a host of established Net companies saw their shares rocket on optimism about Net commerce during the holidays.
In an IPO, a company's underwriter--in Theglobe.com's case, Bear, Stearns & Co.--almost always sets the initial sale price intentionally low, so the stock rises once trading begins.
Hot IPOs such as Theglobe.com can attract huge demand, leaving Wall Street firms to dole out the initial shares to only their favorite institutional and individual clients.
Theglobe.com issued 3.1 million shares to the public, with insiders holding the rest.
Other investors had to wait until trading began to try to get some stock--and had to bid the price up dramatically. By the close of trading, almost 15.7 million shares of Theglobe.com had changed hands--meaning that the shares turned over an average of more than five times during the day.
Research shows that individuals are often the main buyers on IPO launch days--and experts said most of the buying Friday in Theglobe.com appeared to come from small investors as well.
IPO prices soar in part because small investors put in so-called market orders to buy the stocks. These are instructions to their brokers to buy a stock at the prevailing price, no matter how high.
That demand often causes IPOs to hit peaks in the opening minutes of trading and then to fall through the day as those orders are filled, experts say.
"A lot of this is individual investors looking for a quick buck," said Tom Taulli, market analyst at the Silicon Investor, a Web site specializing in technology stocks.
While that fast buck didn't materialize Friday, there is no sign that the mania for Internet-related stocks is dying down. Indeed, EarthWeb's stock, $48.69 a share at its close on its first trading day Wednesday, rose as high as $85.06 on Friday.
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Biggest IPO Hits
Here are the 10 initial public stock offerings that scored the biggest percentage gains on their first trading day. The list includes only those offerings that raised $10 million or more. Stock prices aren't adjusted for any subsequent splits.
IPO First-day Company Date price close Gain Theglobe.com 11/13/98 $9 $63.50 606% Broadcast.com 7/17/98 18 62.75 249 EarthWeb 11/11/98 14 48.69 248 Secure Computing 11/17/95 16 48.25 202 EBay 9/24/98 18 47.38 163 Yahoo 4/12/96 13 33.00 154 Rambus 5/13/97 12 30.25 152 Boston Chicken 11/8/93 20 48.50 143 Planning Sciences 4/30/96 10 24.13 141 Home Shopping Net. 5/13/86 18 42.63 137
Source: Securities Data