Network Solutions IPO on track

Conventional wisdom says that any company that is about to lose a contract that provides it with the majority of its business should not launch an initial public offering. Analysts say that in Network Solutions case, that may not be true.

Despite, perhaps even thanks to, the uncertainty surrounding the future of domain name registration, analysts say that Network Solutions, the company that currently administers the InterNIC, has a good chance of a successful IPO.

Virginia-based Network Solutions has an exclusive agreement with the National Science Foundation until March 1998 to register second-level domain names, such as those associated within the ".com," ".edu," ".net," and ".org," like the "news" in "www.news.com." Network Solutions generates 80 percent of its revenues from the NSF contract.

Who will administer domain names after the agreement expires is hazy at best. Paige Darden, a spokeswoman for the National Telecommunications & Information Administration, said that the government wants to open up domain registration to competition, but as yet has no plan to move out of the current system. Network Solutions believes all this uncertainty will help it to retain its leading role.

Analysts agree.

"We think they are pretty well positioned in an environment where someone has to do it. People aren't going to stop registering domain names and you have to believe that they are as well positioned as anyone else," a source said.

However, the company is bound to lose some of its business, due to the nature of a competitive environment. "They will not get all of the domain name [business], but there is enough opportunity," added the source.

But, the uncertainty looming around future revenue streams may be a barrier for prospective buyers. There are certain criteria that companies must meet in order to be considered by some fund managers.

Marilyn Morrison, a spokeswoman for Stein Roe mutual funds, said when IPOs are considered for the company's family of funds, "we look for companies that have some type of earnings stream."

And while NSI currently meets that criteria, its future earnings are in question.

One fund manager who asked not to be named, said he looks for companies with a minimum of 25 percent top line growth. "We also look for management teams with a proven record from the CEO all the way down," He noted that it is also important to pick companies that are either creating new markets or are well-defined in fast growing markets.

But while NSI is positioned to be a big player in an emerging market, the company also has been under fire recently for a round of problems, including poor billing practices, glitches that have brought Net to its knees, an antitrust investigation by the Justice Department, as well as an antitrust suit filed by PG Media in March.

This registrar of domain names filed a pricing range of $14 to $16 a share, and plans to roll out 2.3 million shares, according to a filing with the Securities and Exchange Commission, in an effort to generate about $36.8 million. The offering will give the company a market value of upwards of $236.8 million.

The company's underwriters include Hambrecht & Quist, J.P. Morgan, and PaineWebber. Analysts say the offering will roll out the week of September 22.