NetSpeak dials for IPO dollars

The WebPhone maker launches its IPO as scheduled, but analysts say others may take the plunge sooner than expected.

3 min read
NetSpeak (NSPK) launched its initial public offering as scheduled today, but analysts say others may take the plunge sooner than expected.

The maker of WebPhone Internet telephone software, which floated out 2.4 million shares and raised $21 million in its IPO, saw its shares jump 20 percent to 10-1/2 at the opening bell from its target price of 8-3/4. The shares ended the day at 9-1/8.

Although NetSpeak fell below the average 13.5 percent first-day gain for technology IPOs this year, its offering will not likely slow the rush of high-tech companies rolling out their IPOs sooner than planned.

Until recently, the second quarter has been a sluggish one for technology IPOs, according to Richard Peterson, an analyst with Securities Data.

But he noted that many underwriters may now try to push through as many deals as possible before the quarter comes to an end.

"They want to book the deals now during the second quarter because the equity market is so sloppy compared to last year. It is better to say that they did eight deals at one value instead of four deals at another," he said.

Overall, despite the recent recovery, the number of technology IPOs is off by more than 50 percent this year, Peterson said. Last year, 222 technology issues were ushered in, raising $11.8 billion in capital.

Amazon.com, which launched its IPO on May 15, soared 30 percent above its opening price at the close of market. A day earlier, Rambus's IPO became the largest first-day gainer of any offering since October of last year, nearly doubling in value.

And while technology companies are again seeing some success in the public markets, this is not necessarily an indication that investors have returned with blind faith to the conceptual IPOs of early last year.

"Rambus and Amazon.com have proved the IPO window has not slammed shut, and there is still room for the higher-quality tech IPOs to still get through," Lise Buyer, a vice president at fund manager T. Rowe Price Associates, said in an interview earlier this month. "But I think institutional investors are still picking and choosing among the deals and not taking everything that comes along."

Peterson added that investors are happy to go with a conceptual IPO as long as it is accompanied by some concrete earnings. Investors are fickle, he said, and their turning point is whether a company has had consistent gains.

"Even in a market with record highs, it is still choppy on the tech side...The bottom line paramount to most investors is that if earnings aren't there," he said.

Peterson pointed out, however, that companies may try to ride on the coattails of the high-flying, record-setting markets. The successful IPOs of Amazon.com and Rambus have been followed with IPO registration filings from such companies as Concentric and @Home.

NetSpeak's offering will leave the company with 10.6 million shares outstanding, giving it a market value of $92.7 million.

The company has also granted underwriter Josephthal, Lyon & Ross the option to purchase up to 360,000 additional shares to cover over-allotments.

NetSpeak plans to fund marketing and sales efforts, research and development, and other corporate expenses with the capital raised in the offering.

According to a filing with the SEC, the company plans to use $5.1 million of the proceeds to ramp up marketing and sales efforts, $6.8 million for additional research and development, and $2 million for capital expenditures.

For the quarter ending in March, the company reported a net loss of $984,935, or 12 cents a share, compared to a loss of $400,367, or 5 cents a share, for the same quarter a year earlier.

Revenue for the quarter increased to $903,766, up from $90,681 last year. The company attributed the increased revenue to engineering services fees and licensing charges from a strategic partner that gave it the right to distribute products featuring NetSpeak's WebPhone client software.