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Salon.com disappoints in debut

Shares of Salon.com (Nasdaq: SALN) fell 3/8 to 10 1/8 Tuesday afternoon in its initial public offering. The stock moved up to a high of 10 13/16 before falling to a low of 9 7/8.

Salon.com priced its initial public offering of 2.5 million shares at $10.50, the low end of its price range. Even at $10, the on-line magazine, which netted a mere $3 million in revenue last year, is valued at well over $100 million.

The most notable item about Salon may be its shares are being offered through a "Open IPO," which allows investors to bid auction style for shares, rather than buying them at a fixed price. This gives bidders the chance to price the shares above the offering price investment bankers might suggest. Salon is only the second company to go public with a dutch auction. W.R. Hambrecht is the lead underwriter and some analysts have sniffed that Salon couldn't get a big-name underwriter because of the shaky business model.

Francis Gaskins, editor of the Gaskins IPO Desktop, gives Salon a "C" rating, his lowest. The "C" mean satisfactory in school, but for Gaskins it means "public venture capital."

"Salon's growth plan is unclear and the competition is plentiful," said Gaskins.

For the year ending March 31, Salon had revenue of $2.9 million and a loss of $6.2 million.

The company said it plans to broaden its network, build community and expand e-commerce sales. All of Salon's revenue comes from advertising and sponsorships.

Last year, Salon depended on just two advertisers for over 50 percent of revenue. Borders (NYSE: BGP) accounted for about 37 percent, and IBM about 16 percent of revenue in the fiscal year ended March 31, 1998. In the fiscal year ended March 31, 1999, Borders accounted for just 13 percent of the company's revenue. The rest came from other small advertisers. Still, the company admits "the loss of any of our significant banner advertisers or advertising sponsors could adversely affect our business."

At least 16 percent of the advertising revenue doesn't even bring in cash. The total revenue reflects the estimated value of barter deals whereby Salon accepts ads in exchange for slotting its own ads on another site.

But the negative publicity surrounding the IPO may mean the public will be too wise to bite the "dot com" carrot.

Nevertheless, the company didn't rule out dipping into the public markets again. "Salon may need to raise additional funds, however, in order to fund more rapid expansion, to develop new or enhance existing services, to respond to competitive pressures or to acquire complementary businesses, products or technologies," the company said in financial filings.