Tech Industry

2HRS2GO: Hotjobs.com couldn&#039t wait on market

At some point, you just take what's on the table and move on.

Or at least so Hotjobs.com Inc. (Nasdaq: HOTJ) figured as it dove into the public markets yesterday. Despite an uncertain market overall (although judging by today's action, maybe not anymore) and a weak one for IPOs in particular, the provider of online job-finder and human resources services and software couldn't wait. "The market sucked today, but we needed the financing event," CEO Richard Johnson said yesterday afternoon.



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Underwriters led by Deutsche Bank Alex. Brown did everything (save cancelling the IPO outright) possible to limit the downside: the offering was cut to 3 million shares from 4.75 million; price range was dropped to $9 to $11 from $12 to $14; and ultimately the stock went out at the discount price of $8.

None of it mattered, as the company become the latest member of the growing Brotherhood of Broken IPOs. Shares of Hotjobs.com closed its first day down 3/8 to 7 5/8, and today remains below the IPO price.

Hotjobs.com says it's different because it lets applicants create their own homepages while hiding resumes from their current bosses; locks out headhunters to ensure companies and job seekers connect directly; and gives employers greater control over recruitment through means such as testing applicants online and filtering out unqualified resumes.

The majority of job sites make money based on a pay-per-listing model derived from the classified ad industry, but Hotjobs.com generates its business mostly through monthly subscriptions that cost a company $600 a month -- a model that means Hotjobs.com has much more predictable and stable revenue, Johnson argues.

The combination seemed compelling as Hotjobs.com wemt pm the usual pre-IPO trek to drum up interest among institutional investors. "We were Icarus flying into the sun," Johnson said. "We were knocking the cover off the ball in the damn road show, we were getting a great response, and then bam! We hit a brick wall with the market conditions."

I suspect that IPO road shows can be a very deceptive experience. Institutional managers can be hard-bitten, cynical individuals that ask plenty of tough questions, but nowadays they'll listen to anything at first, because they need to do something with the flood of money that continues to wash into their funds. "Hmm. That business plan sounds good, I'm very impressed, I'd be interested in a piece of it when it goes out..."

Sure. Just like movie studios love those scripts, option many of them out, then lose interest when it comes time to actually make the films. There are screenplay writers who have scratched out a living with barely any scripts or none at all going into actual production.

Just as studios get cold feet when it comes to actually spending money, fund managers wait until the last minute to gauge the environment for an IPO. Unfortunately for Hotjobs.com, online job recruiting as an industry just isn't interesting enough to overcome investor fears about the overall market.

Even if the field were interesting, investors see a crowded field. A company like Red Hat has had gobs of fawning press and remains the only pure play available for the growing Linux market, so its success today is not unexpected. On the other hand, Hotjobs faces better known competitors such as Monster.com, Careerpath and Career Mosaic. By Hotjobs.com's own estimate, job seekers have at least 3,500 websites to choose from, counting all the smaller sites and industry-specific boards.

Strong financials also appeal to investors, but Hotjobs.com's top and bottom lines are typical of a new Web company: revenues growing at a strong clip (46 percent sequentially), but on a small base (less than $2 million in the first quarter), while losses continue to move higher.

But making money requires money, and like many Internet companies, Hotjobs.com couldn't wait any longer to get some. The company had spent months preparing for the IPO, and switching to private financing would take more time, effort and distraction. Worse yet, executives would eventually have to repeat the pre-IPO process all over to go public when the market revived.

So Hotjobs.com pressed forward with this week's offering. "Yesterday (Monday) at 5 o'clock p.m. we were saying, 'Should we do this or not?' " Johnson said. "But we wanted to get back to business."

That's why it's hard to blame Hotjobs.com for going out in troubled market. Because ultimately, getting back to business is the best way to drum up investor interest.

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