GoTo.com Shares Go to It in First Day of Trading
Investors’ continuing appetite for Internet stocks gave shares of search engine company GoTo.com a 49% boost on their first day of trading Friday, when they rose $7.38 to close at $22.38 on Nasdaq.
Investment experts said the performance was particularly impressive given the recent volatility of tech stocks and the less ebullient debuts of several other Internet IPOs on Friday. Some new Internet issues even posted losses in their first day of trading.
“It is important to see that the investor has not disappeared from the Internet environment but has become a more discerning buyer,” said David Menlow, president of IPO Financial Network in Springfield, N.J. “The emotionalism that was so prevalent in previous markets has subsided, and there’s a much more rational thought process involved.”
Indeed, investors displayed a decidedly sober attitude about Streamline.com, an electronic commerce company. The Westwood, Mass.-based firm’s shares closed at $7.63 on Friday, $2.38 below the offering price in their first day of Nasdaq trading.
Student Advantage, a Boston-based subscription Web site that offers discounts for students, closed unchanged at $8 in its Nasdaq debut, despite having BancBoston Robertson Stephens, an investment bank specializing in Internet issues, as its lead underwriter.
And New York-based e-mail provider Mail.com rose a modest $1.75 to $8.75 on Nasdaq in its first trading day.
A more discriminating market wasn’t the only challenge facing GoTo.com. The Pasadena company, which raised $90 million through the offering underwritten by Donaldson, Lufkin & Jenrette Securities, also picked a less-than-ideal day to begin trading on the public market, said Gail Bronson, senior analyst with IPO Monitor in Palo Alto.
Friday was one of four days every year known as a “triple witching day,” when stock options, stock index options and stock index futures contracts expire simultaneously. That confluence generally makes trading exceptionally volatile and unpredictable.
“Who comes out on a triple witching day on a Friday in the summer, when tech stocks are generally at a seasonal low?” Bronson asked.
GoTo.com wasn’t the only Internet company with a successful offering Friday. Viant, an Internet service provider in Boston, saw its shares jump $8 to close at $24, a 50% gain, on Nasdaq.
GoTo has a business model radically different from those of conventional search sites such as Excite and Yahoo. Rather than separating its site rankings from advertising pressures, it lets companies pay to secure high rankings in search results; users of the site can see how much a given company paid to get a prominent listing. The principle is similar to that of the Yellow Pages in that the companies pay more for better visibility.
But like nearly all Internet start-ups, GoTo has yet to turn a profit. In the 12-month period that ended March 31, the company lost $20.7 million on revenues of $2.2 million, according to a filing with the Securities and Exchange Commission.
At GoTo’s Pasadena offices Friday, employees watched on computer monitors as the stock price spiked to an intra-day high of $28.50 in the first 15 minutes of trading; then they began a festive but relatively normal workday, said President Ted Meisel. All of the company’s roughly 150 employees have options on at least several hundred shares, he said.
The IPO produced another big payday for Idealab, the Pasadena Internet company incubator that spawned GoTo 16 months ago. At Friday’s closing price, Idealab’s stake in GoTo was worth nearly $206 million. The stake of Idealab Capital Partners, the incubator’s venture capital arm, was worth $88 million.
But the biggest beneficiary was Bill Gross, the entrepreneur who founded both Idealab and GoTo.com. The value of his GoTo shares reached nearly $294 million.
