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Tech Industry

Let them eat Net IPOs

After underwriting some 40-odd Internet-related initial public offerings last year, investment banks in 1999 are putting the pedal to the metal and cranking out Net IPOs at a record pace.

After underwriting some 40-odd Internet-related initial public offerings last year, investment banks in 1999 are putting the pedal to the metal and cranking out Net IPOs at a record pace. In January alone, nine of the 19, or some 47 percent, of the IPOs filed were Net-related.

Wall Street says it's just giving the public what it wants. Yet investors may soon grow tired of being overfed.

Of these, only one offering--Log On America, underwritten by Dirks & Company--was represented by what can be considered a small investment concern. Others, including such firms as Critical Path, Autoweb.com, and iTurf, have had their prospective deals managed by established firms such as BankBoston Robertson Stephens, CS First Boston, and BT Alex. Brown.

Fast forward to February, where after counting their bonuses and returning from extended winter vacations, many investment firms' underwriting machines decided to put in some overtime. Of 47 filed deals last month, 20 were Net related. Seven of these, however, are being underwritten by such regional firms as Whale Securities, Bluestone Securities, and Schneider Securities.

While some deals, such as Internet access service provider Marimba's $56.4 million IPO, are represented by industry stalwart Morgan Stanley Dean Witter, others are being underwritten by firms that are entering the online and e-commerce financing business for the first time.

With the market flooded with Internet deals that may be risky or limited in scope, some may think that any old investment bank can step in and sponsor an initial public offering. With the demand so strong for such offerings, however, investors may not be paying much attention to the names behind the deals.

To make sense of this Internet whirlwind, investors should look for experienced underwriting firms.

Hambrecht & Quist leads as the top underwriter of Internet-related IPOs and secondary offerings with 16 completed deals to its credit, according to Securities Data/Thomson Financial. Of these, only a few early offerings, including CyberCash, Infonautics, and VocalTec Communications, headed south. Since then, Hambrecht & Quist's deals have registered strong gains.

On the other hand, managers who have limited practice in underwriting Net issues have showed mixed results. For example, Joseph Charles brought Ursus Telecom to market in May of last year, only to watch shares in the Net-based telecommunications provider lose 68 percent of their value to trade under $3.

Additionally, the proliferation of Net IPOs is likely to lead to a crowding-out affect, potentially harming the financial future of non-Internet high-tech concerns.

For example, only two chip makers, PLX Technology and Extreme Networks, have so far filed plans to go public this year. Similarly, just a handful of networking concerns, including iXL Enterprises and Applied Theory, are expected to go public over the next few weeks.

Thus capital needs of developing companies may not be met in the short-term, hampering product development and research. The alternative is that cash-scrapped firms may be looking to venture capital groups or other investors to shore up any sagging balance sheets.