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IPO market tests TheGlobe.com

Faced with weak demand for its IPO, the Net community lowers its pricing range, raising the question of whether Healtheon will follow suit.

Faced with weak demand for its initial public offering, TheGlobe.com today lowered its pricing range, raising the question of whether other pending Internet IPOs such as that of Healtheon will follow suit.

TheGlobe.com lowered its pricing range to between 8 and 10 per share from its previous range of between 11 and 13 per share, despite a rebound in the markets during the past week. With its revised filing, the community builder is hoping to raise up to $31 million--23 percent less than what it previously had expected to raise.

The company anticipates that it will price the deal as early as Wednesday night and float its IPO the following day.

Healtheon, meanwhile, is expected to set a target price as early as tonight and launch its IPO tomorrow. The online health care and benefits management company currently has a pricing range of between 6 and 8 per share, and hopes to raise as much as $58.4 million in capital.

"TheGlobe.com could have a negative effect that could spill over to other deals and impair the general tone of the IPO market," said Richard Peterson, an IPO analyst with Securities Data. "But on the other side of the argument, all the money that wants to invest in a tech IPO may rush to Healtheon. One company's misery may be another's gain."

Other analysts contend that TheGlobe.com's actions are not a harbinger of bad news for tech IPOs.

"TheGlobe.com is not indicative of the whole market," said Ken Fleming, an analyst for the Renaissance Capital IPO Fund. "TheGlobe is not a top company in its niche, and that may have had something to do with lowering its range."

One portfolio manger decided to pass on TheGlobe.com, saying that its ability to achieve profitability remains in doubt. Another fund manager opted out because he hopes to pick up the issue for a cheaper price after its shares hit the market, basing his position on his belief that the stock could fall to between 5 and 6 per share in the after market.

A similar scenario played out with entertainment software developer Interplay. The company lowered its pricing range by more than 30 percent before hitting the markets in June at 5.50 per share. The stock was trading around 2.25 per share today.

Fund managers also appear to be taking a pass on Healtheon at this point. They noted that, while the company's business model shows promise of profitability down the line, its pricing range does not reflect its current financial standing.

"We thought the competition was heating up in that space and that the valuation they were asking for was outside [our comfort level]," said one of the fund managers. "Like TheGlobe, we also feel we can buy it cheaper in the secondary market."

The fund managers noted also that there has been a flight to quality companies during the markets' recent volatility.

"These companies are coming out at time when the level of risk tolerance among investors has changed," said one portfolio manager.