Salon Grabs Skeptics’ Attention Again With Controversial IPO
One of the most interesting stories unfolding at Internet magazine Salon.com these days is the online magazine’s own upcoming stock offering.
The San Francisco-based firm aims to raise $30 million in an initial public offering tentatively scheduled for Friday, an ambitious goal for a company that at its core is a political magazine with meager ad revenue and uncertain prospects for profitability.
Grim financials have hardly kept investors from scrambling for shares of countless “dot-com” companies. But other factors swirling around this IPO may test the enthusiasm of even die-hard Internet investors.
The offering comes as many Internet stocks are swooning. It marks the first Internet company issue to be sold through a new, and still largely untested, online auction mechanism. And recent financial disclosures have raised questions about the reliability of Salon executives in their statements to the media in recent years.
But investors may be perfectly willing to brush aside these issues if they can be convinced that Salon is poised for the kind of growth on the Internet that few magazines enjoy offline.
“Internet companies are being granted these valuations based on the assumption that they’re going to be tremendously profitable in the future,” said Greg Vogel, an Internet analyst at Banc of America Securities. “Is [Salon] going to be the digital equivalent of Newsweek? I’m somewhat skeptical.”
But Salon has been battling skeptics since it was founded four years ago by a group of editors and reporters from the San Francisco Examiner who saw an opportunity to create a magazine for a new medium.
The company said it will use much of the proceeds from the IPO to expand its sales force and market the site to attract more readers. The offering is being handled by W.R. Hambrecht & Co., one of several start-ups using the Internet to present stock offerings directly to investors, bypassing traditional brokerage firms. Investors can read the company’s IPO filings and bid on Salon shares at https://www.openipo.com.
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Salon has become a respected source of political and cultural commentary. It is known for its staunch support of President Clinton during the Monica Lewinsky scandal, and for an editorial menu that ranges from analysis of the conflict in Kosovo to offbeat columns on such topics as “Why do men have nipples?”
Such work has earned the magazine a loyal, but still relatively small, following. Its Web site had 625,000 unique visitors in April, about as many as ConsumerReports’ site, https://www.consumerreports.org, according to research firm Media Metrix. In contrast, Yahoo, the Net’s most popular site, attracted 30.9 million visitors.
In an interview last year, Salon founder David Talbot said the company had a core readership of about 60,000, although that figure has undoubtedly risen since then.
Salon’s revenue has been comparably paltry. In fact, the company’s prospectus paints a grimmer financial picture than executives had presented in interviews in recent years.
Newsweek magazine and the Los Angeles Times published stories last year that quoted Salon executives--including Talbot--as saying the company’s annual revenue was about $6 million, and that profit “won’t come until 1999.”
But in recent filings with securities regulators, Salon reported revenue of $2.1 million for the last nine months of 1998, with a net loss of $4.3 million, and said the company expects losses “to increase for at least the foreseeable future.”
These discrepancies and others were detailed in a recent column by Michael Kinsley, editor of Slate.com, a Microsoft Corp.-run magazine that is Salon’s chief online rival.
Kinsley recalled how aggressive Salon has been in exposing the hypocrisy of others. During the Lewinsky scandal, for instance, Salon published--30 years after the fact--details of marital infidelities by Rep. Henry Hyde (R-Ill.).
“Those who go around exposing unpleasant facts about other people,” Kinsley wrote, “had better be truth-tellers themselves.”
A Salon spokeswoman said executives were eager to respond to Kinsley’s charges, but were precluded from doing so under “quiet period” restrictions imposed by the Securities and Exchange Commission immediately before and after a stock offering.
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Even aside from that controversy, Salon’s IPO is being closely watched within the traditional publishing industry, where it is viewed with a mix of jealousy and incredulity.
That is because if Salon’s IPO succeeds, it could have an estimated market capitalization of $130 million. The possibility that this online upstart will end up with a market value many times higher than what comparable offline magazines are worth causes print publishers to gasp.
The $130-million figure “is just an off-the-wall number,” said John Fox Sullivan, publisher of the National Journal, a print political magazine. “You would be hard-pressed to find many magazines that are political in nature that have made much money over the past 20 years, or ever. I don’t see what Salon has that gets them out of that trap.”
Supposedly, the answer is the Internet. Some argue that because Salon and Slate are published online, and therefore have no printing or distribution costs to speak of, they have major advantages over print magazines.
“Our cost of putting out Slate is the same whether one person reads it or a million people read it a month,” said Scott Moore, publisher of Slate. “If you can reach critical mass, and the ad market continues to develop online, you can cover those fixed costs and become profitable.”
Perhaps swayed by that argument, investors have clamored for shares of other Internet publications, such as TheStreet.com and ZDNet.com. But shares in those companies have lost more than half their value in recent months, and analysts point out that those publications, unlike Salon, focus on niches such as investing or computing news that appeal to specific advertisers.
Salon’s IPO is coming at a tough time for tech stocks. The Interactive Week index, which tracks many leading online stocks, closed at 278.96 on Friday, down from a high of 369.7 on April 13.
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Salon is also selling its shares in an unconventional way, through a “Dutch auction” process in which investors bid on shares over the Internet. The system offers everyday investors the unusual chance to get in on an IPO. But some say the bidding process also means the offering will be priced high, and will not yield the huge gains that often follow Internet stock IPOs.
Salon’s shares, which will trade on Nasdaq under the ticker SALN, are projected to sell for about $12 apiece. But the actual level will be set at the “clearing price,” the lowest bid at which all 2.5 million shares available would be sold. After the offering, there will be 10.7 million shares outstanding.
The first stock sold through OpenIPO was Ravenswood Winery, whose shares have barely budged from their opening price of $10.50 in April.
In an interview with The Times a year ago, Talbot, 47, said he was far more concerned with making a cultural impact than getting rich. “I don’t dream of IPO day,” he said.
But the former newspaper editor may be starting to have those dreams now. He will own about 4% of the company once it is public, and his shares could be worth $5 million or more.
Greg Miller can be reached at greg.miller@latimes.com.
