Initial Public Offering (IPO) - Ipo Slowdown Began In 2000

IPO SLOWDOWN BEGAN IN (2000)

The IPO market remained strong in the first quarter of 2000. According to figures cited in Business Week, 33 Internet firms went public in January and February, with average first-day gains of 160 percent in January and 144 percent in February. IPO.com projected there would be more than 500 high-tech IPOs in the coming year, compared to 387 in 1999. The research firm did not know that conditions for high-tech and e-commerce IPOs would change dramatically during the year.

Buy.com 's IPO took place in February 2000. The company sold 14 million shares at $13 per share, raising approximately $182 million. Investors quickly bid the price up to $35 on the first day of trading before closing at $25.12 a share. Investor interest appeared to be unaffected by Buy.com 's failure to turn a profit. Although revenue for 1999 increased nearly fourfold to $296.8 million, the company's loss for the year was $130.2 million, compared to a loss of $17.8 million in 1998.

New companies in the business-to-business sector also attracted investor interest. WebMethods Inc., whose B2B software suite was based on XML, saw its shares increase 508 percent from $35 to over $212 on its first day of trading in February 2000. A month later the stock was trading at $240 a share. While the company's XML software generated a lot of interest, investors may have also been attracted by WebMethods' level of sales, clear cost savings for customers, and a demonstrable path to profitability.

While the IPO market remained strong through the first quarter of 2000, it finally cooled off in the second quarter of the year. Buy.com and other Internet companies that had gone public saw their stock prices fall to their IPO levels and below. Investors were becoming more concerned about the cash-flow problems and high cash-burn rates of online retailers. For the rest of 2000, a shakeout of dot.com companies took place, with many going out of business for a lack of funding. In November 2000, approximately 27 companies withdrew their IPO filings because of the weak market for IPOs, including PetSmart.com and CarsDirect.com.

Conditions for high-tech IPOs had not improved much when Loudcloud, an e-commerce solutions company started by Netscape co-founder Marc Andreessen, held its initial public offering on March 9, 2001. The unfavorable investment climate for Internet-based companies forced the company to lower its initial offering price. Instead of selling 10 million shares at $10 to $12 a share, Loudcloud had to sell 25 million shares at an offering price of $6 in order to raise the $150 million it needed.

As of mid-May 2001, only six technology-related IPOs had been executed in 2001, and none for e-commerce companies. In fact, no e-commerce company had held an IPO since 1999, according to VentureOne. One of the strongest technology offerings in 2001 was Instinet, which rose 22 percent on opening day. However, technology companies in general appeared to be waiting to launch their IPOs. According to IPO.com, only 11 companies went public in July and August 2001, and none in September. The drought in IPOs was attributed to several factors, including a general economic slowdown and market uncertainty.