The lackluster results from Internet initial public offerings Wednesday had analysts questioning whether it was time for a .com breather.
For the second straight day, Internet IPOs failed to impress investors. In fact, Juno Online Services Inc. (Nasdaq: JWEB), one of the more anticipated Net IPOs of the week, opened at its offering price of 13 and ended 1 3/8 lower at 11 5/8. Edgar Online Inc. (Nasdaq: EDGR) also opened with a thud and dipped below its opening price of 9 1/2, although it recovered to post a slight 1/16 gain to 9 9/16. ZipLink (Nasdaq: ZIPL) also was "broken," falling 1 5/8 to 12 3/8, from an opening price of 14.
A "broken" Internet IPO, where shares fall below the offering price, was rare -- until now. Comps.com (Nasdaq: CDOT) has the dubious distinction of being the year's first "broken" offering.
Juno's flop was surprising, said analysts.
"I'm a little surprised," said Ken Fleming, an analyst with Renaissance Capital Corp. "Juno had a sizable user base and real revenue."
Juno has 6.8 million free e-mail users and plans to transition them to pay services. In the first quarter, Juno reported sales of $9.7 million.
Couple the Juno and Edgar Online debuts with the modest gains from DLJDirect (NYSE: DIR) and you could conclude the IPO window is closing.
Or it may just mean that investors are being more selective. StarMedia Inc. (Nasdaq: STRM), the dominant portal for Latin America, jumped to 28 3/4 in its market debut from an offering price of $15.
Big floats, small run-ups
Analysts, however, stopped short of pronouncing the IPO market closed for the summer.
"The door's may be closed temporarily, but it'll come back, maybe in a month," said Tom Taulli, author of "Investing in IPOs." Taulli also doubles as a market analyst for Edgar Online.
In addition, the demand for Internet IPOs is still there, but companies are leaving a lot less on the table.
The Barnesandnoble.com Inc. (Nasdaq: BNBN) offering was declared lukewarm by many, but the company floated 25 million shares. The average Internet IPO offers about 5 million shares. DLJDirect may not see a traditional .com run-up, but it offered 16 million shares.
It's basic supply and demand, said analysts. The more shares a company offers the less investors have to scratch and claw to get shares. Barnesandnoble.com and DLJDirect aren't complaining because they raised $450 million and $320 million, respectively.
The glut effect
Aside from the more shares being offered by Internet companies, there are simply too many Internet offerings to choose from.
"The .com thing seems to be played out," said Steven Tuen, director of research for IPO Value Monitor. "It's getting cliche."
Fleming said many companies are having trouble keeping investors interested in their offerings for more than a few days. "There's definitely a glut," he said.
Fleming added that only the big names such as StarMedia and EToys (Nasdaq: ETYS) will survive while Internet stocks get hammered.
"Three months ago everything went up, now just the premier names will," said Fleming.
The aftermarket performance shows the glut effect. Companies such as NetObjects (Nasdaq: NETO), Fashionmall.com (Nasdaq: FASH), ValueAmerica (Nasdaq: VUSA), and Autobytel.com (Nasdaq: ABTL) are all below their offering prices.
Meanwhile, headliners such as iVillage Inc. (Nasdaq: IVIL) and TheStreet.com (Nasdaq: TSCM) have been halved from their IPO highs.
"Investors are a lot more cautious now," said Fleming. "If you don't break out on your first day investors forget about you."
A healthy breather?
Taulli said investors might be forgetting about IPOs simply because investors are exhausted. This week featured 18 companies in the IPO wings. Not every Internet IPO can be a hit.
"This is almost a healthy thing," said Fleming, referring to the IPO shakeup. "There needs to be a cooling off period because the market just can't sustain it. It's painful, but needs to be done."
After a little hiatus, analysts expect the IPO market to come roaring back.
"There's still some pretty exciting companies in the pipeline, including MP3.com," said Taulli.