Market slide hurts IPO prospects

Analysts warn that Wall Street's recent downturn could dampen enthusiasm for some upcoming initial public offerings.

The public's rabid desire for "all things Internet" has caused some IPO prices to shoot up on the first day of trading. Stock in Broadcast.com, for example, more than tripled in first-day activity last month. But concerns about the market, including the Asia crisis and slowing corporate earnings, could affect future IPOs.

"Investors aren't as willing to invest in untested companies when the companies in their portfolios aren't doing that well," said Chip Vetter, director of corporate finance for BancAmerica Robertson Stephens.

Investors' timid response could prompt some companies to price offerings at the low end of their ranges or even delay them, Vetter added.

Tech IPOs, which had been the sizzle in an otherwise sluggish IPO market this summer, now are starting to feel the drag.

Early stage companies in choppy markets may have a more difficult time than leading companies, said Robert Keller, head of Hambrecht & Quist's Internet banking group. Keller defines early stage companies as those that are not yet generating enough revenues to support an IPO.

Some companies, however, will still plan to move forward with their initial public offerings, despite the market's wild ride of late.

Internet leaders such as online community builder GeoCities and Internet city guide CitySearch are not expected to be hit as hard when they go public, say IPO analysts. GeoCities could price as early as Monday, and CitySearch also is slated to price next week.

"I think there's more uncertainty now, but the Internet leaders are still a good play," said Ken Fleming, an analyst with Renaissance Capital's IPO Fund. "GeoCities is a top five Web site and that's pretty attractive long-term."

Fleming predicted that GeoCities and CitySearch will still go public, "but I don't think it will necessarily be as big an open as Broadcast.com, given the uncertainty," he said.

Richard Peterson, an IPO analyst with Securities Data, said tech IPOs have performed well on their first days this year, but typically have slumped on second-day trading. The recent market downturn, he said, only makes going public right now an even riskier proposition, he said.

"Obviously some people will be scared about going in," Peterson said. "But the bankers and issuers will be committed to pricing barring any further erosion."

So when will the IPO market look up?

"August has traditionally been a slow time. I don't think we'll see any material change post Labor Day," Vetter said. "But as people focus on the fundamentals that drive the market, like low interest rates, and, assuming strong earnings outlooks for corporations?we may see people start getting back into equities in late September and up to Thanksgiving."

He cautioned, however, that any larger-than-expected downfall in the Asia economy could call "all bets off."

Tepid interest and a sluggish market have caused some companies to pull-the-plug on their scheduled IPOs.

And others, like push-technology pioneer PointCast, have decided not to go public at all. PointCast pulled its offering last month, in part to discuss possible partnerships with other companies. Meanwhile, traditional industrial companies, such as canned food company Del Monte, heating and air-conditioning company Infinity, and health snack food firm Natural Nutrition all recently have put off IPOs as the market has slowed, Fleming said.

Other tech companies could postpone pricing because IPO performance has generally been poor this year.

"More than half the IPOs are trading below their offer prices, that's pretty horrible," Fleming said.

Several other technology companies are slated to go public in the coming weeks, including interactive ad agency 24/7 Media, e-commerce company Digital River, cable modem maker Terayon Communication Systems, Internet auction site uBid, and eBay.

NetGrocer and TheGlobe.com also have filed to go public recently.

"The pipeline is certainly full of Internet IPOs, and that's a function of when they all filed," Fleming said. "At the time, Internet stocks were the hottest thing going."

Fleming said Net stocks have been hit hard by the market's recent downturn, with many trading well below their 52-week highs.