Net IPOs Off to Good Start in Sagging Sector

While most Internet stocks were diving again Wednesday, some Wall Street analysts were trying to rally investors to jump in.

And in a surprise to many Wall Streeters, underwriters for several new Net stock issues opted to price their offerings--and got surprisingly good results.

Whether the stocks can rise when they begin trading today is the real test, however.

Amid Wednesday’s carnage, Henry Blodget, oft-quoted Net analyst at Merrill Lynch, told investors that he most favors such business-oriented Net stocks as Ariba Inc., Verticalnet and CyberSource Corp.

But he also said that many young Net companies are likely to fail.

The companies most likely to have difficulties will be “third, fourth or fifth in their particular market segments,” he said.

“We expect [these stocks] to be volatile,” Blodget said. And if trends in Net usage, advertising and other measures slow, he said, “We see a lot of downside from here” for lower-tier stocks.

At brokerage PaineWebber, analyst James Preissler reiterated his “buy” rating on America Online, which fell $1.38 to $87.44. He maintained his 12-month price target of $215.

If that optimism was surprising, so were the receptions for several Net initial public offerings.

* One issue that began trading was Internet Initiative of Japan Inc., an Internet service provider in that country.

It was priced at $23 early Wednesday and soared to close at $31.31 on Nasdaq, under the symbol IIJI. The company opted to sell stock in the United States even before it does in Japan.

“It is a market leader and it’s not just a pure Internet play. They have a network infrastructure so they can be masters of their own domain. They can also collect a usage charge [going forward] as the gatekeeper on their network. I think there is a lot of upside,” said Randall Roth, an analyst at Renaissance Capital Corp.’s IPO Plus Aftermarket Fund

While Japan’s Net penetration rate at the end of 1998 was 10.8%, versus about 24% in the U.S., tremendous growth is expected.

Internet Initiative posted a net loss of 12.1 million yen on revenue of 124.7 million yen in the year ended in March. Connectivity or Internet access services accounted for about 80% of revenue.

“Longer term, not only will the Internet grow in Asia, but also telecom deregulation will lead to lower access charges, and that should benefit companies like this one because it will spur data traffic growth,” said Eric Ritter, portfolio manager of the Asia-Pacific Growth Fund at Driehaus Mutual Funds.

* Late Wednesday, Home-Store.com, a real estate information provider, was priced at $20 a share, at the top of the expected range. It begins trading today as HOMS.

* Another new stock that got a good reception was Net venture investor Internet Capital (symbol: ICGE), priced at $12, also the top of the expected range.

* Interactive Pictures (IPIX), which makes software for digital cameras, was priced at $18, likewise the top of its range.

Yet the most anticipated Net stock debut on Tuesday, Net florist 1-800-Flowers, sank for a second day on Wednesday, down $1.19 to $17. Its new-issue price was $21.

It’s going to be an interesting trading day today.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

How Low Can They Go?

Pity the investor who paid peak prices for Internet stocks--and has held on. Major Net stocks now are down 50% or more from their 52-week high prices, after another steep dive on Wednesday. A sampling:

*--*

52-week 52-week Wednesday: Wednesday: Stock (ticker symbol) high low* close change MarketWatch.com (MKTW) $130.00 $29.19 $27.31 -$4.69 Ebay (EBAY) 234.00 8.38 75.75 -8.63 Xoom.com (XMCM) 98.50 21.13 36.00 -7.25 Doubleclick (DCLK) 176.00 6.75 67.69 -6.81 Etoys (ETYS) 85.00 35.50 33.25 -4.75 Amazon.com (AMZN) 221.25 21.63 88.44 -6.44 F5 Networks (FFIV) 85.00 10.13 34.50 -6.63 Verticalnet (VERT) 149.00 34.75 68.88 -6.50 NextCard (NXCD) 50.00 22.00 24.13 -8.13 Yahoo (YHOO) 244.00 29.50 121.00 -4.38 America Online (AOL) 175.50 17.25 87.44 -1.38 Gadzoox Net. (ZOOX) 87.00 58.13 54.84 -9.03

Decline Stock (ticker symbol) from high MarketWatch.com (MKTW) -79% Ebay (EBAY) -68 Xoom.com (XMCM) -63 Doubleclick (DCLK) -62 Etoys (ETYS) -61 Amazon.com (AMZN) -60 F5 Networks (FFIV) -59 Verticalnet (VERT) -54 NextCard (NXCD) -52 Yahoo (YHOO) -50 America Online (AOL) -50 Gadzoox Net. (ZOOX) -37

*--*

*52-week lows don’t include Wednesday’s trading or initial public offering price if applicable

Note: All trade on Nasdaq except America Online (New York Stock Exchange).

Source: Times research, Reuters