THE DAY AHEAD: Should you bat an eye at Wink's IPO?

Larry Dignan
3 min read

If a company is judged by the friends it keeps, Wink Communications may easily impress Wall Street. If financials matter, investors may not bat an eye at Wink.

Wink, which will trade today, priced its 4.75 million share offering at $16, the top of its price range, according to lead underwriter Donaldson, Lufkin & Jenrette. Wink bumped up its shares from 4.2 million with a price range of $14 and $16 a share.

Interactive TV: Is the future finally here?

Wink (Nasdaq: WINK) allows electronic commerce to be conducted through cable TV boxes and remote control handsets. Indeed, Wink is a long-time proponent of making television interactive.

The company was founded in 1994 and has been planning to make couch potatoes interactive ever since. Although interactive TV hasn't caught on after two decades of touting, potential broadband players such as DirecTV and Microsoft's WebTV unit have been ponying up sizable money for stakes in Wink.

DirectTV invested $15 million for a 4 percent stake last month and Microsoft (Nasdaq: MSFT) invested $30 million for a 10 percent stake in June. Microsoft will use Wink's technology in future version of WebTV. Wink has also licensed its technology to CBS, NBC, ABC, CNN and a host of other cable channels.

Here's how Wink's technology works: Viewer sees TV advertisement with the Wink icon, an "i," in the corner and use his trusty remote control to get more information. Currently, viewers can get samples and more information such as sports scores. But, of course, Wink is planning to enable viewers to buy goods directly through the TV soon.

Sounds great. But Wink will be in less than 200,000 homes by the end of year in a crowded market that includes competitors such as Worldgate Communications (Nasdaq: WGAT), Source Media (Nadsaq: SRCM) and ACTV (Nasdaq: IATV).

As of July 29, Wink's enhanced broadcasting services reached 40,000 homes. And the financials are dreadful. For 1998, Wink reported sales of $517,000 and a loss of $14 million. For the six months ending June 30, sales were $620,000 with a loss of $9.2 million. "Our ability to generate revenue is subject to substantial uncertainty," said the company in regulatory filings.

That's an understatement. First, interactive TV has to take root. Then, Wink's plan to generate revenue through fees on e-commerce transactions has to work.

As Wink takes advantage of its relationships -- cable box makers Scientific Atlanta Inc. (NYSE: SFA) and General Instrument Corp. (NYSE: GIC) are investors -- the company surmises it will garner most of its future revenue from transaction fees from advertisers and merchants. Currently, most of Wink's meager sales are related to licensing and engineering fees.

The biggest challenge for Wink may be encouraging couch potatoes to become interactive, impulse buyers. Viewers "may feel that responding to Wink-enhanced programming and advertising is too complex or interferes with viewing television," the company said.

If Wink doesn't entice viewers, the penalties could be substantial. None of Wink's partners are obligated to use Wink's services if the technology doesn't boost revenue. Meanwhile, Wink has promised revenue guarantees to several partners if Wink-enabled homes hit a certain threshold.

If the couch crowd doesn't become impulse buyers, Wink said the "liabilities may be substantial."