Frenzy for Web Stocks Fuels 1998’s First-Day IPO Gains
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Call it the year of the “one-day wonders.”
Never have we seen such dramatic first-day trading gains in initial public offerings as we did in 1998, according to firms that monitor such information.
Price gains of 100%, 200% or more in just a few trading hours seemed to come every other week this year, grabbing headlines and whipping individual investors into an IPO frenzy.
In fact, six of the best first-day IPO performances of all time occurred this year, according to data provided by CommScan, a New York investment banking research firm.
A combination of factors, including the extraordinary interest in Internet stocks, the increasing presence of individual traders and the relatively strong stock market, have all contributed.
“We’ve had all the right stage props in the economy and the market to give investors the confidence to pile on to these IPOs,” said Gail Bronson, an analyst with IPO Monitor in Calabasas. “This might not have happened in a gloomy market.”
Ma and Pa Investor are behind the one-day wonders, Wall Street specialists say, noting that many individuals are placing first-day buy orders without price limits. That has meant that many of those orders get filled later in the day as an IPO’s price soars--inflating it further still.
“The frenzy feeds on itself. Everyone says, ‘Wow, I didn’t play the last one, so I’ve got to play this one,’ ” said Dick Smith, syndicate manager for NationsBanc Montgomery Securities in San Francisco. “The professional investors get the bulk of IPOs [at the initial offering price], and as this frenzy goes on during the day, they sell the bulk of their shares to individuals who buy at lofty prices.”
No state’s companies have benefited more than California’s. Six of the 10 best first-day performances of U.S. IPOs this year involved firms based in the Golden State.
“If you look to see where most of these stocks live, they are here in California,” Smith said. “It’s good for us, especially in Southern California,” which saw blockbuster IPOs from firms such as Marina del Rey-based GeoCities, Irvine-based Broadcom and Pasadena-based Ticketmaster Online-Citysearch.
And, no surprise, most were technology-related.
“The Internet is the big component here,” said David Menlow, president of IPO Financial Network, a New Jersey data tracker. IPOs offer “the best market for investors to realize gains based on the unseasoned aspects of the whole sector. It’s going to be a wild rodeo for a while, until there is some way to price these things.”
For the year, the best IPO performer after one trading day was New York-based Theglobe.com, which saw its stock rise 606% on Nov. 13. Broadcast.com of Dallas rose 249% on its first day, in July, and New York-based EarthWeb was third, rising 248% in November.
Such price increases obviously send a company’s market value soaring. For instance, Theglobe.com was valued at $88 million when it went public, but it had become a $622-million company by the end of its first trading day.
However, many IPOs that initially rocketed in price subsequently fell just as dramatically--some back to the original IPO price or slightly above.
This kind of volatility is raising the eyebrows of regulators.
Last week, the National Assn. of Securities Dealers, which operates the Nasdaq Stock Market, said it expects to propose rules aimed at curbing the volatility that has characterized recent IPOs of some Internet stocks.
“We don’t think investors are well-served by herd behavior in which individual electronic orders run the price way up, then run it back down,” said Nasdaq President Alfred Berkeley.
The rules, which would have to be approved by the Securities and Exchange Commission, are aimed at increasing the visibility of the IPO market before trading opens on a new stock. One proposal would extend the period immediately before trading in which broker-dealers can set quotes at which they’re willing to buy and sell shares.
Recently, some investors who placed “buy” orders--often without setting a price limit--shortly after trading opened encountered delays in having their orders executed as dealers tried to sort out the unusual investor demand for these stocks. Such delays cost the investors money.
The NASD’s proposals echo recent moves by brokerages such as Charles Schwab, to limit the types of orders they allow for IPOs. Ameritrade Holding said it won’t accept pre-trading orders, and Donaldson, Lufkin & Jenrette’s DLJ Direct now prohibits these orders for some volatile offerings.
“Even if these rules don’t get approved, this NASD move should be a warning sign to investors in the IPO market,” said Bronson of IPO Monitor. “They are great markets as long as you are informed, active and financially able to handle the roller-coaster ride.”
Bronson questioned why investors believe they need to get in on the first day of an IPO, when the market volatility of the day makes it more likely they will get burned.
“Why risk it?” Bronson said. “You can get cheap thrills in the real world.”
Times staff writer Debora Vrana covers investment banking and the securities industry. She can be reached by e-mail at [email protected].
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One-Day Wonders
The 10 all-time best-performing U.S. IPOs after one day of trading include six deals from 1998, making this the year of the “one-day wonder.”
Name: Theglobe.com
State: N.Y.
Amt., in millions: $22.9
Type: Tech.
Date: 11/98
Ticker Symbol: TGLO
One-day % chg.: +605.6%
IPO price: $9.00
Friday price: $34.63
% chg., offer to current: +284.8%
*
Name: Glasgal Comm*
State: N.J.
Amt., in millions: 5.0
Type: Comm.
Date: 12/92
Ticker Symbol: DATC
One-day % chg.: +400.0
IPO price: 4.00
Friday price: 3.13
% chg., offer to current: -21.8
*
Name: Broadcast.com
State: Texas
Amt., in millions: 45.0
Type: Tech.
Date: 7/98
Ticker Symbol: BCST
One-day % chg.: +248.6
IPO price: 18.00
Friday price: 71.00
% chg., offer to current: +294.4
*
Name: Earthweb
State: N.Y.
Amt., in millions: 29.4
Type: Tech.
Date: 11/98
Ticker Symbol: EWBX
One-day % chg.: +247.8
IPO price: 14.00
Friday price: 41.19
% chg., offer to current: +194.2
*
Name: UBid
State: Ill.
Amt., in millions: 23.7
Type: Tech.
Date: 12/98
Ticker Symbol: UBID
One-day % chg.: +220.0
IPO price: 15.00
Friday price: 53.13
% chg., offer to current: +254.2
*
Name: Secure Comp.
State: Minn.
Amt., in millions: 32.0
Type: Tech.
Date: 11/95
Ticker Symbol: SCUR
One-day % chg.: +201.6
IPO price: 16.00
Friday price: 17.06
% chg., offer to current: +6.6
*
Name: Ticketmaster
State: Calif.
Amt., in millions: 98.0
Type: Tech.
Date: 12/98
Ticker Symbol: TMCS
One-day % chg.: +187.5
IPO price: 14.00
Friday price: 40.69
% chg., offer to current: +190.6
*
Name: Applewoods
State: N.Y.
Amt., in millions: 6.0
Type: Manuf.
Date: 4/96
Ticker Symbol: APWD
One-day % chg.: +185.0
IPO price: 5.00
Friday price: 0.06
% chg., offer to current: -97.5
*
Name: Artificial Life
State: Mass.
Amt., in millions: 13.6
Type: Tech.
Date: 2/98
Ticker Symbol: ALIF
One-day % chg.: +176.5
IPO price: 8.50
Friday price: 15.50
% chg., offer to current: +82.4
*
Name: Wireless Cable
State: Ga.
Amt., in millions: 5.0
Type: Comm.
Date: 10/93
Ticker Symbol: **
One-day % chg.: +172.0
IPO price: 6.25
Friday price: **
% chg., offer to current: **
*
* Now Datatec
** Acquired; prices not available
Source: CommScan
California Clout
Of the 10 best-performing IPOs in the U.S. this year after one day, six were from California and all were tech-related. The state’s top 10 offerings in 1998, ranked by first-day performance:
Name: Ticketmaster
City: Pasadena
Amount, in millions: $98.0
Date: 12/98
Ticker symbol: TMCS
One-day % change: +187.5%
IPO price: $14
Latest price: $40.69
% chg., offer to current: +190.6%
*
Name: EBay
City: San Jose
Amount, in millions: 63.0
Date: 9/98
Ticker symbol: EBAY
One-day % change: +163.2
IPO price: 18
Latest price: 252.25
% chg., offer to current: +1,301.4
*
Name: Xoom.com
City: San Francisco
Amount, in millions: 56.0
Date: 12/98
Ticker symbol: XMCM
One-day % change: +146.0
IPO price: 14
Latest price: 29.00
% chg., offer to current: +107.1
*
Name: Broadcom
City: Irvine
Amount, in millions: 84.0
Date: 4/98
Ticker symbol: BRCM
One-day % change: +123.4
IPO price: 24
Latest price: 112.00
% chg., offer to current: +366.7
*
Name: E-Tek
City: San Jose
Amount, in millions: 60.0
Date: 12/98
Ticker symbol: ETEK
One-day % change: +122.9
IPO price: 12
Latest price: 21.69
% chg., offer to current: +80.8
*
Name: GeoCities
City: Santa Monica
Amount, in millions: 80.7
Date: 8/98
Ticker symbol: GCTY
One-day % change: +119.5
IPO price: 17
Latest price: 37.88
% chg., offer to current: +122.8
*
Name: Inktomi
City: San Mateo
Amount, in millions: 40.6
Date: 6/98
Ticker symbol: INKT
One-day % change: +100.0
IPO price: 18
Latest price: 139.75
% chg., offer to current: +676.4
*
Name: Computer Lit.
City: Sunnyvale
Amount, in millions: 30.0
Date: 11/98
Ticker symbol: CMPL
One-day % change: +99.4
IPO price: 10
Latest price: 14.06
% chg., offer to current: +40.6
*
Name: Exodus Comm.
City: Santa Clara
Amount, in millions: 67.5
Date: 3/98
Ticker symbol: EXDS
One-day % change: +84.2
IPO price: 15
Latest price: 52.75
% chg., offer to current: +251.7
*
Name: Versign
City: Mountain View
Amount, in millions: 42.0
Date: 1/98
Ticker symbol: VRSN
One-day % change: +82.1
IPO price: 14
Latest price: 51.13
% chg., offer to current: +265.2
Source: CommScan
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