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Going public at the speed of Net

"Internet time" is one thing, buy many analysts are questioning whether companies like Drugstore.com want too much, too soon.

Drugstore.com's rush to go public is only the latest example of what one analyst deemed the "theater of the absurd" as Internet companies scramble to offer shares to a public eager to grab new stocks from any firm with "dot-com" in its name.

With Internet stocks often skyrocketing after IPOs and Net companies including Amazon.com and eBay boasting market capitalizations in excess of $20 billion, the draw of an IPO is understandable. eToys, today saw its stock price nearly quadruple on its first day of trading.

Drugstore began selling health and beauty products on the Internet in February. In its first quarter of online operations it lost $10.2 million on $652,000 of revenue, the only revenue it has ever reported. The company, which was founded in April 1998, has lost some $17.6 million since its inception.

But Drugstore isn't the only company trying to cash in on the Net stock bonanza. According to Dalton Chandler, analyst with investment bank Needham & Company, there are some 50 Internet companies currently registered to make an initial public offering.

"[Drugstore] is not jumping the gun any more than a lot of companies are," Chandler said.

And according to Lauren Cooks Levitan, analyst with BancBoston Robertson Stephens, this could be only the beginning. With Net companies requiring cash to build their brands, many will be offering stocks early into their business operations, Levitan said.

"Across the board, you are going to see earlier and earlier entrance to public markets, as long as the public has an appetite for it," Levitan said.

Chandler added that Net companies have a motivation to cash in with an IPO as quickly as possible.

"You have to understand that in this game, capital is a weapon," Chandler said. "If somebody's going to give it to you, you take it."

But Rick Berry, an analyst with J.P. Turner, said that Internet companies are taking advantage of a "gullible" public that is willing to overpay for Net stocks. From that perspective, Drugstore.com's IPO is little different from others in the sector, he said.

"Why is this anymore absurd than the theater of the absurd, which is the Internet sector?" Berry asked.

But Berry said he sees an end in site for the Internet gold rush. Noting the drop in Amazon's stock price over the last several months, he predicted that the Internet sector as a whole will decline by as much as 50 percent in the next three months.

Not so, said Keenan Vision analyst Vernon Keenan, who believes overall Net stock values won't drop any time soon.

Keenan said "na?ve traders" might be hurt by the stock offerings of a number of smaller Internet companies. But considering that Drugstore.com is backed by influential Kleiner Perkins Caufield and Byers, the same venture capital firm that backed Amazon, he is high on the company's prospects.

"Anybody that has a Kleiner Perkins and a Jeff Bezos behind it is someone to pay attention to," Keenan said.

Drugstore filed yesterday to sell up to $67.5 million worth of stock; the company did not say how many shares it would sell or set a target price for them. Drugstore will also sell $10 million worth of stock at the offering price to Amazon.com. Amazon already owns 43.8 percent of the company, according to yesterday's regulatory filing.