March 1999 Contents
E-Commerce Companies Light Up IPO Market The term IPO has almost become synonymous with Internet by now. With February coming to a close and March looking to be another big IPO month, the market will witness a hectic schedule as numerous Internet companies aim toward the public, particularly e-commerce companies. Internet software provider Intraware and two companies from the ".com" phenomena, Priceline.com and pcOrder.com. Priceline.com is the largest of the three offerings with the hopes of raising $115 million when it goes public. The company is unique as far as web sites go. Rather than sell goods and services at fixed prices like Amazon.com or auction products off like eBay and uBid, Priceline.com asks buyers to set a price and then searches its database for sellers willing to accept the offer. The unusual retail model has allowed Priceline.com to sell approximately 6,700 airline tickets - its signature merchandise - since it began last April, grossing the company $15.5 million. The Web site sells new cars and hotel reservations as well, while the company plans to add home mortgages and other travel products in the near future. Intraware will also be one of the next Internet plays out of the starting gate, pricing 4 million shares near the close of the month. Unlike Priceline.com, Intraware has a narrower and more traditional electronic commerce focus, providing corporate software services to information tech professionals and software vendors. pcOrder.com also differs from Priceline.com since rather than selling products or services, the company provides electronic commerce solutions to the computer industry, helping both suppliers and resellers market their products over the Internet. Although the business-to-business e-commerce market is exploding, growing from $8 billion in 1997 to an estimated $32.7 billion by 2002, pcOrder.com has been unable to turn a profit in the last three years. Revenue has climbed from $515,000 in 1994, the company's first full year of operations, to $21.7 million in 1998, but operating losses have also widened, climbing to $9.6 million in 1998. With February being the biggest IPO month on record including 9 IPOs and 28 filings, March may also see similar results. Two companies to watch out for are BiznessOnline.com and Portal Software. Internet service provider BizenessOnline.com has recently bought 4 other ISPs that cater to over 16,000 residential customers in the northeastern U.S. Portal software, which began as an Internet service provider, makes customer management and billing software for providers of Internet-based services. Its Infranet product automates such tasks as user authorization, activity tracking, and billing. It also enables immediate service activation and let subscribers access real-time information about their accounts. TheStreet.com Set to IPO, Flooz: The Newest Alley Craze TheStreet.com has been receiving overwhelming attention as it plans for an initial public offering in March. News of the IPO came out just 24 hours after The New York Times Company took a 7% stake in the online company for $15 million in cash and promotional considerations. TheStreet.com has brought in over 37,000 subscribers with 1998n reported revenues of $4.6 million. The company, which currently resides as an online news source for day traders and investors, also plans to expand its bulk offerings to professional and other on- and offline media properties. Currently, developing a TV show is one of its primary interests. Manhasset-based CMP Media has put itself on the auction block by attaining investment bankers Lazard Freres & Co. to help the company look for a buyer. Discussions with industry sources suggest that the apparent interest of general interest publishing companies like Time Inc. in the computer technology space in the wake of Conde Naste's purchase of Wired last year has convinced people inside CMP that the time might be right to sell. The company also announced its 1998 results: net income of $10 million with an increase in revenues from $473.9 million in 1997 to $477.6 million in 1998. A new Silicon Alley company making waves is Flooz.com as it has just recently launched its site at the beginning of February. Its purpose is to allow gift-givers to e-mail their friends and family, gifts of Flooz in virtually any dollar amount, which the recipient can redeem in any store that is a part of the Flooz network. The giver pays with a credit card, and the money goes into the account that is established for the recipient. When shopping in the Flooz-enabled stores, the recipient simply types in his account number and the price of the gift is debited from the account. The whole process is free for both the gift-giver and the recipient; the company makes its money by taking a percentage of the purchase price (around 7-15%). Becoming Flooz-enabled involves installing a server that interfaces with the Flooz account database and the merchant must also make front-end changes to the checkout system that allows customers to choose Flooz payment as an option. Intel and Analog Form Partnership to Develop Chip Semiconductor giants Intel Corp. and Analog Devices Inc. have formed a partnership to develop a fast-growing type of semiconductor chip used in communications equipment. Under the terms of the deal, the two companies will design a series of digital signal processors, or DSPs. DSPs are used in products including cellular telephones and computer modems. A partnership with the world's largest chipmaker could be a crucial endorsement for Analog, as it tries to expand the use of its specialty chips from computers to products such as air conditioners and refrigerators. Behind Texas Instruments Inc. and Lucent Technologies Inc., Analog is the No. 3 player in the multibillion-dollar DSP market. Intel doesn't make DSP chips, and the alliance could allow the company to fill a considerable product void as it moves outside microprocessors to making chips for all types of appliances. Representatives of Analog and Intel wouldn't comment on any details of the alliance. More than likely, the chips that the two companies develop will be used in modems, networking devices and other communications devices. It couldn't be revealed whether Intel plans to market modems, but one area of the market that is growing fast is digital-subscriber line modems, which are used to provide fast Internet access over regular phone lines. DSP chips take analog signals, such as voice and images and convert them into digital signals. For instance, a DSP inside a cellular phone converts, encrypts and compresses the human voice into a digital signal before it is sent over the airwaves. Analog's DSP sales in its current fiscal year are expected to reach about $400 million, more than a quarter of the company's overall estimated revenue of $1.35 billion. Big customers include 3Com Corp., Siemens AG and Philips Electronics NV. The market for DSP chips is expected to hit $4.5 billion this year, from $3.5 billion last year, according to Semico Research in Scottsdale, Arizona. USA Networks, Lycos Merge; Lycos Scoops Up Wired Online February continued the string of Internet mergers from the past several months as USA Networks, one of the premier basic cable companies, merged with Lycos. USA Networks took a 61 percent stake in Lycos, the fourth largest Internet entryway. This combination will create a powerhouse with more than $1.5 billion in annual revenues and the capacity to reach 70 million TV households and 30 million Internet users. The new company, renamed USA/Lycos Interactive Networks Inc., will combine Lycos with USA Networks' various operating units, which include Home Shopping Network, Internet Shopping Network/First Auction, and its majority interest in Ticketmaster. Consequently, USA/Lycos will have the reach of a national cable TV network combined with the broad range of Internet media, communications and commerce capabilities. USA/Lycos television will have the capacity to reach 70 million homes. Its Home Shopping and Ticketmaster properties will be able handle more than one million telephone transactions and ship more than 200,000 items each day. On the Internet, USA/Lycos will reach about 30 million people, nearly 50 percent of all users, through its network of Web sites. Aside the details, the USA/Lycos merger received mixed reviews on Wall Street as Lycos stock suffered heavily that day. A reason for this lack of merger enthusiasm can be attributed to CMGI Inc. As a Massachusetts Internet investment firm and Lycos' biggest shareholder, CMGI claimed that it will not endorse the merger with USA Networks Inc. unless something is done to make the deal more attractive. Wall Street read that as a threat to veto the combination unless CMGI receives a better price for the 20 percent of Lycos it currently owns. Lycos is also in the news for striking a deal with Wired Digital Online worth nearly $100 million. Although just a small part of Lycos' market value of about $3.5 billion, it will lead to a greater influx of Internet traffic. The acquisition of the Wired online properties boosts Lycos from the No. 4 online service to No. 2, making it more attractive to potential acquirers. Between Lycos, USA Networks and Wired, the three will help narrow the boundaries between the Internet, television and cable. eToys Gears Up for IPO, Web IPO Wonders Dominate Hoping to cash in on the recent mania for any and all Internet-related companies, online toy retailer eToys filed for a $115 million initial public offering set to be made at the end of February led by underwriter Goldman Sachs. eToys saw astronomical growth during the holiday season last year. For the fourth quarter of 1998, the California-based company posted sales of $21.9 million, a gain of more than 3,700% over sales in the previous quarter of $608,000. As is the case with many online retailers, eToys has yet to record a profit. Despite impressive revenue growth, the company's loss of nearly $10 million was almost triple that of the previous quarter. eToys noted in its IPO filing that it would have difficulty repeating its fourth-quarter growth. Pointing out that toy retailers generate more than half their yearly sales during the holiday season. eToys' customer base has grown to 320,000 since the Web site began selling products online in 1997. Recent IPO surges were seen in Vignette and Webtrends which went public in mid-February. Webtrends focuses on software as its products and services enable businesses to profile and fine-tune their sites by determining who is accessing a site, what pages are viewed most and when a problem is about to occur. In its first day on the market, the company's stock jumped to $38 a share from the initial opening of $13 a share. As for Vignette, its stock soared to $41 a share in its first day from an initial offering price of $19. Vignette is positioned in the business of the high-end Web publishing market. The company's StoryServer content management software lets Web publishers drop in stories on their sites without reprogramming, and helps manufacturers personalize private Web pages with data for individual clients. Finally, Prodigy Communications, an Internet service provider, debuted in February and also succeeded on jumping into the market successfully on a high note. Despite its forgettable history in the ISP market years ago, it managed to swoon investors on its IPO day. Also, it has recently tied a deal with Blockbuster Entertainment to co-brand an Internet service featuring entertainment content for Blockbuster and in turn will promote the new Prodigy Internet Software. Japanese Business in the United States
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