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Tech Industry

Preview Travel launches IPO

Preview Travel launches itself into the public realm, but its stock fails to catch a strong wind. Does this mark a downturn for tech IPOs?

Preview Travel (PTVL) today launched itself into the public realm, but its stock failed to catch a strong wind.

The online travel company will raise $27.5 million from its offering of 2.5 million shares of common stock at a price of $11 a share.

But rather than flying out of the launch chute, Preview's first trade of the day gained 6 percent, to 11-5/8. That's less than last May's 8 percent average gain for tech IPOs--when the volume of IPOs was at rock bottom. It's also a far cry from the average first-trade gain of 18 percent that tech IPOs received in August, according to Securities Data.

Preview's lackluster performance, however, may be part of a downturn for tech IPOs.

Two other tech companies that launched IPOs during the last week also barely passed August's gains. SportsLine (SPLN) opened at 9, after being priced at $8 per share, a jump of 12.5 percent, while Software AG Americas (AGS) opened yesterday at 11, after pricing at 10, a gain of 10 percent.

But streaming audio and video company RealNetworks anticipates a hot market for its upcoming IPO. The company upped its pricing range today and expects to go public tomorrow.

Preview's stock rose as high as 11-3/4 in morning trading, and 1.8 million shares traded hands by 10 a.m. PT. Prior to setting its price target at 11, Preview had a pricing range of $10 to $12 per share.

In addition to Preview Travel's flagship site, the company operates a cobranded travel Web site with Excite (XCIT) and is the primary travel service offered on America Online (AOL). Both of these joint ventures are under strategic distribution agreements that expire in 2002 or, under certain circumstances, earlier.

Travel services sold through AOL and Excite for the three months ending September 30 accounted for 67 percent and 13 percent, respectively, of Preview Travel's online revenues.

For the September quarter, Preview recorded revenue for its online and television businesses of $3.4 million, up from $3.2 million in the June quarter and down from $3.5 million reported in the September quarter of 1996. The company's online revenues grew to $1.6 million in the September quarter, up from $745,000 a year earlier. However, revenue from its television operations dropped to $1.8 million, from $2.8 million a year earlier.

Net loss for the period was $2.5 million, compared with a loss of $1.2 million a year earlier. At the end of the quarter, the company had an accumulated deficit of $21.2 million.

Preview Travel expects to use a portion of the net proceeds from its IPO to fund its operating losses. It said that, together with its existing capital resources, the proceeds will be sufficient to meet the company's capital requirements through at least the next 12 months. However, the company may be required to raise additional funds, in part to fund its financial obligations to AOL and Excite.

Additionally, television advertising accounted for over 50 percent of the company's television revenue for the September quarter, and advertising revenue from MCI accounted for 37 percent of that revenue. However, MCI phased out its sponsorship of the company's television programming from the first quarter to the third quarter of 1997. As a result, Preview does not expect to receive any additional revenues from MCI for television sponsorships.

Following the public offering, Preview Travel will have nearly 11.7 million shares outstanding, giving the travel company a book value of $128.2 million.

Hambrecht & Quist is acting as lead manager of the IPO, with NationsBanc Montgomery Securities serving as comanager of the underwriting group.

The company competes primarily with traditional travel agencies and online travel-reservation services. Its competitors in the online travel services market, include Microsoft's Expedia, SABREGroup Holdings' Travelocity, CUC International, Pegasus' TravelWeb, and Internet Travel Network.