It wasn't that long ago -- back in July -- that a young Internet company could go for the jugular when it came to pricing its initial public offering. Initial price ranges were bumped up and often topped as demand swelled. And then the stock soared in the aftermarket.
Investors were happy with big gains and companies were raising lots of dough.
That changed with the 1-800-Flowers.com (Nasdaq: FLWS) offering Aug. 3. The IPO priced at $21, hit a brick wall on the stock exchange and hasn't passed the offering price since. Shares closed at 16 11/16 Friday. And 1-800-Flowers.com priced well above its initial price range and was heavily oversubscribed.
Fast forward just a few weeks from Aug. 3 and IPOs are being priced to sell with good results. Underwriters are juggling share amounts, price ranges and doing everything but borrowing K-Mart's blue light to ensure aftermarket success. On this week's calendar there are at least four deals -- Calico Commerce (Proposed ticker: CLIC), Medscape (Proposed ticker: MSCP), E.piphany (Proposed ticker: EPNY) and Yesmail.com (Proposed ticker: YESM) -- that have altered initial terms.
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"There are too many deals and the market is nervously optimistic," said Gordon Anderson, editor-in-chief of Hoovers Online. "The strong deals will get done, but it's treacherous for weaker companies."
According to Anderson and other IPO watchers, these weaker companies have three choices: raise as much money as you can and risk being marked as a "broken" IPO, postpone the offering, or price shares to move and hope for the best.
Many firms are choosing the blue light specials. In August, Bamboo.com (Nasdaq: BAMB), ImageX.com (Nasdaq: IMGX) and Hotjobs.com (Nasdaq: HOTJ) all lowered price ranges significantly to get a nice first day pop. And it worked. With a little momentum on their side, this trio of .coms was trading ahead of the opening prices.
Although cutting IPO prices for aftermarket performance doesn't raise as much money for the company, it generates good public relations and provides a stock currency for acquisitions.
James F. McCann, CEO of 1-800-Flowers.com, said the public relations boost from an aftermarket run-up is debatable. McCann's company was tarred as a broken IPO, but it raised a lot more cash than it had originally expected.
"It wasn't the most attractive time to go out," he said, noting the Internet stock correction and market turmoil. "But the volume of demand was strong."
McCann said lead underwriter Goldman Sachs priced the offering to leave some money on the table and ensure a first-day gain for investors. It didn't happen. 1-800-Flowers.com shares stalled and the retail investors that usually fuel big first day gains didn't rush in.
"Did we want the stock to go up? Yes. Is it the end of the world it didn't? No," said McCann. The 1-800-Flowers.com chief said pricing shares lower may not have boosted aftermarket performance anyway because 90 percent of its shareholders are institutions, not exactly the quick trading types.
McCann said he's confident the company's shares will pass the IPO price and keep gaining.
The 1-800-Flowers.com example is why companies aren't going for a pricing homerun.
"On the roadshow you just don't know how things will go," said Anderson. "Investors are keeping cards close to the deck."
Hed: Priced to sell
Here's a look at some recent pricing moves:
- Medscape (Proposed ticker: MSCP) cut terms to 6.6 million shares at $7 to $9 from 5.3 million shares at $11 to $13. Trades week of 9/27.
- Luminant Worldwide (Proposed ticker: LUMT) cut terms to 5 million shares at $15 to $17 from 12.57 million shares at $11 to $13. Closed at 28 Friday.
- Bamboo.com (Nasdaq: BAMB) priced 4 million shares at $7 on Aug. 26. Original terms: 5 million shares between at $10-$12. Closed at 21 1/4 Friday.
- ImageX.com (Nasdaq: IMGX) priced 3 million shares at $7 on Aug. 26. Original terms: 4 million shares at $12-$14. Closed at 16 1/4 Friday.
- MyPoints.com (Nasdaq: MYPT) priced 5 million shares at $8 Aug. 23. Original terms: 5 million shares at $10-$12. Closed at 17 3/8 Friday.
- Hotjobs.com (Nasdaq: HOTJ) priced 3 million shares at $8 Aug. 10. Original terms: 4.7 million at. $12-$14. Closed at 26 15/16 Friday.