Lycos IPO bodes well for Net stock
Lycos became the first Internet search engine to go public, and it proved that Internet stocks are still a hot ticket.
The stock opened at $16 but quickly shot up to $29.95 before closing at $21.94, an increase of 37 percent. The company's first day out didn't reach the level of trading mania as Netscape's astronomical IPO in August, but Lycos's first gains bode well for its two search engine rivals, Yahoo and Excite, both scheduled to go public this month. An estimated 3 million of 13.6 million outstanding Lycos shares were traded yesterday.
"If your stock moves up five points on the first day it is considered phenomenal, but to almost double is really outstanding," said Larry Welke, president of ICP, a company that provides research for the information technology industry.
But any analysts say yesterday's performance is still more a reflection of Wall Street's fixation with the Internet than faith in Lycos specifically as a profitable company. "Lycos is popular and the name is well known, so even though most investors don't know squat about the Internet they will buy," said Tony Nunes, president of Wall Street Online.
"It's not necessarily the profitability of the company," Nunes said. "It's the excitement about it being Internet stock, and investors are banking on the potential for it to explode, which has been the case so far."
Lycos was first developed by Michael Mauldin, a computer science professor at Carnegie-Mellon University who is still chief computer scientist at Lycos. Like its search engine competitors, the site helps users slog through millions of Web pages to find the content they're looking for. The service is free, but the site expects to make money selling advertising and licensing its technology to other companies.
CMG@Ventures acquired an 80 percent stake in the company last June for $1 million, and the company pulled in revenue of about $1 million in the last two quarters combined, 90 percent of which came from advertising, according to the Lycos prospectus.
The reality is that Lycos will face stiff competition from the more well-known Yahoo and a long list of other Net searching sites. That reality seems to have sunk in with investors, whose interest in Lycos is mild compared to the euphoria inspired by Netscape, which opened on its first day of trading at $28 and closed at $58.25 before shooting up to more than $150 over the next few months. Netscape stock is trading this week in the mid-40s.
"Almost any Internet-related stock is definitely going to skyrocket, but it will fall down to a reasonable expectation at the end of the day. But considering the public's expectations of Internet stock is out of control, who knows what will happen?" ICP's Welke asked.
Yahoo's shares are expected to open at $12 but will most likely go up to about $18, Nunes predicts. Analysts expect Excite's share to open between $12 and $14.
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