Savvis dives below IPO price
Shares of Savvis Communications, an Internet and data service provider, slip below their initial public offering price, a rarity for recent Internet-related issues.
Savvis shares closed more than 10 percent lower today at $21.5, after issuing 17 million shares at $24 each yesterday.
The significant size of the offering may have impacted the potential for a large first-day gain. Many dot.com IPOs offer a limited number of shares which, analysts say, sometimes artificially impacts demand, inflating share prices. In the past year, first-day gains of more than double or triple the offer price have become almost routine in the Internet and networking industries.
The sub-par performance for Savvis raises questions about whether investors believe Savvis--which offers managed data services primarily for major financial institutions, Web hosting and corporate Net access--can compete successfully against several major international communications companies.
A spin-off of financial publisher Bridge Information Systems, Savvis delivers data such as real-time stock quotes for major brokerage houses and investment banks worldwide. The company also hopes to sell high-quality Internet access to those customers and other multinational companies in the same buildings. Savvis also hope to sell Web hosting and server co-location services in 250,000 square feet of data center space, which it expects to build this year.
However, companies such as MCI WorldCom, Global Crossing, Equant and joint ventures such as Global One and Concert--an alliance between AT&T and British Telecom--also are targeting the major multinational corporations, making for a crowded market.
"They're going to have some pretty big competition," said Bill Whyman, an Internet industry analyst at Legg Mason's Precursor Group.
Whyman said that Savvis, which leases its network infrastructure from other communications carriers on short-term contracts, may be at a disadvantage to larger competitors which own "end to end" networks.
"If you want to serve multinational corporations (your network has) got to be mission critical. It's very hard to do if you don't own all the elements," Whyman said.
Still, Savvis has more than 1,000 customers in 83 cities in 43 countries worldwide--solid numbers even for a company whose $2 billion market valuation pales in comparison to some of its larger competitors. The company has access to 4,500 customers via its partnership with Bridge, a popular financial information source.
Savvis executives say their reputation for high-quality service, and a new emphasis on Net access, co-location and Web hosting services for its existing customers, will help attract new business.
"Our goal is to go to those 4,500 customers and say 'How about Internet access?'," said Savvis chief operating officer Jack Finlayson. "We'll also hit the other tenants in our 6,000 buildings with managed data services, hosting and Net access... So that's a huge opportunity."