Is Inktomi overrated?
Analysts say the search engine company's gains at this point may have more to do with investor euphoria than anything else.
In its first day of trading, Inktomi shares closed at 36, doubling the $18-per share price underwriters had set. The Internet search engine company's stock gained yet more ground yesterday, and in early trading today passed the 42 mark, despite a second day of losses on the technology-driven Nasdaq. The stock closed today at 40.12, down .37, or nearly 1 percent.
"What Inktomi has got as an IPO--and we've seen this with IPOs before--is celebrity value," said David Simons, managing director of Digital Video Investments, referring to the company's high-profile deals with Microsoft, Yahoo, and America Online. "That alone is not a reason to buy the stock, but I think a lot of people are buying on that basis."
Inktomi also wins high marks for its "parallel computing" technology, which combines the resources of dozens of workstations to tackle extremely large jobs. The technology is scaleable, meaning it can adapt to the size of the job at hand without losing efficiency or speed. It is this robustness that has led companies such as Microsoft and Yahoo to turn to Inktomi in building their search engines.
Another factor pushing up the price of Inktomi--and other Internet and technology stocks as well--is the unorthodox nature of high-tech business.
"A lot of these hot Internet and technology IPOs are very difficult to price for the investment banker, because traditional valuation methodologies don't always hold," said Nat Schindler, a research analyst with Volpe Brown Whelan. As a result, companies' stocks are often traded on their name, and not always on their fundamentals."
Irrational or not, investors' enthusiasm for technology and Net stocks is not having an effect on all IPOs. For example, an IPO for NetGravity, a company that makes Internet ad management software, was priced last month on the low end at 9, and closed up just 8.3 percent, at 9.75.