Will CitySearch's IPO fly?

While the enthusiasm generated before the initial public offerings of some Internet companies have helped them soar on their first days of trading, CitySearch's IPO may not catch the same tailwind because of cautious optimism among institutional investors.

Expected to set its target price tomorrow, CitySearch could very well find that investor enthusiasm for its offering pales in comparison to that extended to GeoCities, which launched a hot IPO yesterday.

"GeoCities is a like a barometer benchmark," said one institutional investor. "It managed to fly up even in this schizophrenic market, but I don't expect CitySearch to do as well."

GeoCities rose nearly 120 percent on its first day of trading, and has continued its ascent with a nearly 22 percent spike today. The company's target price was set at $17 a share, which exceeded its pricing range of between $14 and $16 a share.

By comparison, CitySearch has not changed its pricing range of between $11 and $13 since it filed its IPO plans in June. Based on the high end of that range, the company is planning to float out 4 million shares and raise $52 million in capital.

"There have been other Internet companies recently that haven't done all that hot with their IPOs," said Ken Fleming, a research analyst at Renaissance Capital's IPO Fund, referring to Cyberian Outpost's offering last month and the fact that the company now is trading below its offering price. "I think, going forward, we are not going to see every Internet IPO take off the same way."

Although institutional investors may not view CitySearch's IPO as being on the same level as that of GeoCities, they remain confident that the offering will nevertheless be a success.

"I think CitySearch will do well and investors will be forgiving for the first six months to a year," said one industry source. "There really is no real operation metrix to judge them against."

Concern remains, however, about how well CitySearch will do in a competitive market. The company provides city guides funded by local merchants on the Web, and is but one of many to have entered this market. Some of the big hitters in the league include Microsoft's Sidewalk.com, America Online's Digital Cities, and Yahoo's local sites.

"The question is how big of a company can this become in the sense that they will have to devote so many resources to open a city?" said another institutional investor. "Their model is selling to small businesses to create local portals. That sounds to me like a lot of sales and marketing expenses."

Still, most people in the industry agree that CitySearch has a leg up on the local sites maintained by major portals like Yahoo and Excite.

"I think CitySearch has much greater depth and breadth of content," said an institutional investor. "It's painfully obvious when you go to Yahoo's local sites and find many dead links."

The source added that, unlike CitySearch, Yahoo and other portals want merely to maintain some summary information on city resources, without great detail, and to capture a few more page views in the process.

CitySearch reported revenues of $3.7 million for the quarter ended June 30, up from $1 million reported a year ago. The company reported a loss of $8.5 million for the quarter, slightly narrowing its loss of $8.9 million a year earlier. I

"They have lost a lost a lot of money in the three years [they've been operating] and accumulated a deficit of more than $60 million," said Fleming. "Their loss is bigger than other Internet companies because they have to maintain a larger staff. They need reporters, editors, and salespeople to deal with the restaurants and local businesses."