IPO Watchers Pin Hopes on Internet's EBay

By DEBORA VRANA

Sept. 21, 1998 12 AM PT

TIMES STAFF WRITER

You have to go back more than two decades to find another three weeks in a row as dead as the last 21 days have been for initial public offerings, analysts say.

Last week, for the third straight week, no first-time stock offerings were priced nationwide. Market watchers hope an IPO from EBay Inc., a San Jose-based Internet company, could be priced this week and break the freeze.

The last time the market went this long between IPO deals--excluding Christmas and New Year’s holiday weeks--was July 15 to Sept. 24, 1975, according to Securities Data Co., a New Jersey data firm that began tracking IPOs in 1970.

“As long as there is significant volatility, people are going to sit on the sidelines,” said Daniel Ewell, a managing director and head of Los Angeles corporate finance for Morgan Stanley Dean Witter in Los Angeles. “We’re certainly counseling some of our clients to wait.”

The market for the first-time stock offerings closely tracks the market for small-company stocks, analysts noted, and the significant drops in that segment in recent weeks have crushed plans for many companies preparing IPOs this month. The volatility makes it much more difficult to price and sell IPOs, which are considered speculative investments with a high potential for failure.

As a result, there is a backlog of 127 IPOs from companies that have filed to go public and are expected to be priced this year, according to data from NationsBanc Montgomery Securities.

“There are more and more deals that are headed for pricing as we move toward the end of this month,” said David Menlow, president of IPO Financial Network Corp. in New Jersey.

So far this year, there have been 326 IPOs. These stocks are down an average of 16.2% from their offering price, according to John E. Fitzgibbon of IPO Reporter, a newsletter in New York. These results illustrate why IPOs are risky vehicles best suited for those who can afford to lose the money they invest in them.

While a significant few IPOs see share prices double or triple, of this year’s IPOs only 75 are trading above the original per-share price at all, Fitzgibbon noted.

“Times have really gotten thin. This is the worst market since the mid-1970s,” he said.

Of the year’s five top-performing deals, four were Internet-related. That’s one reason why most market watchers are pinning their hopes for an IPO market comeback on little EBay, an Internet auction company tentatively scheduled to go public this week.

Akin to a virtual swap meet, the company’s Web site has pioneered online person-to-person trading in items such as antiques, computers, coins and memorabilia.

EBay has hosted more than 15 million auctions, resulting in more than $340 million in sales. During the first half of this year the number of registered EBay users more than doubled to 850,000 from 340,000, the company said.

In its filing with the Securities and Exchange Commission, EBay said it expects to raise nearly $56 million by selling shares at $14 to $16 apiece. Company officials could not comment because EBay is in a “quiet period” imposed by the SEC while its deal is pending.

EBay is already profitable--rare for a fast-growing Internet IPO--and the underwriter is Goldman, Sachs & Co., which has handled several of the most successful technology-related IPOs this year.

“EBay for [this] week is crucial,” said Tom Taulli, technology analyst with IPO Monitor, a data company in Calabasas. “This deal has everything going for it. If it doesn’t do well, it’s going to be dry as the Sahara for a while. If Goldman can’t do it, this IPO market is dead.”

Taulli noted that Goldman “has a lot at stake” with the EBay deal because the New York-based investment bank has its own IPO coming in the next two months.

Debora Vrana covers investment banking for The Times. She can be reached via e-mail at debora.vrana@latimes.com.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Deal in the Spotlight: EBay

The initial public offering market is betting on a deal this week from EBay, a small Northern California company, to pull it out of the deep freeze.

Name: EBay Inc.

Headquarters: San Jose

Expected price: $14-$16 a share

IPO target: $55.8 million

Type of business: Internet auction company

CEO: Margaret C. Whitman

Year founded: 1995

Expected market value after deal: $635.8 million.