In spite of an overall IPO market that could most generously be described as stagnant, the communications sector has witnessed its offering prices for its venture-backed companies increase dramatically over the past year. Of course, most of the rise occurred during the first quarter when some neo-economists were arguing that the concept of a cycle was as dead as a manual typewriter.
Year to date for Nov. 27, venture-backed communications companies that went public in 2000 have totaled $5.143 billion in offering amount, a 29% increase from the same period last year, which had a total offer amount of $3.981 billion. This escalation in financing totals is not meant to suggest a jump in the IPO volume, however, as 38 VC-backed communications companies went public ? two less than the year-to-date total for 1999.
On average, a lot more money went into each deal this year.
“I?m surprised that it was higher than last year,” said Rex G. Mitchell, communications analyst with BB&T Capital Markets. “It seems like it?s been cold forever, but that?s just reminding readers that it?s still been a hot year. It hasn?t been frozen forever.”
Facts and Figures
Communications IPOs in the first quarter of 2000 totaled $2.8325 billion in offer amount, a staggering 15 times the offer amount total for Q1 the previous year, which was $185.4 million. There were also large disparities in totals for October and November of each year. From Oct. 1 to Nov. 27, 1999 — when the market was heating up due to dotcom mania — IPOs in the communications sector totaled $1.7208 billion in offer amount, nearly four times the $463.8 million in offer amount during the same period this year. This last figure confirms the popular sentiment that the current market for IPOs is, indeed, absent without leave.
“At the end of the day, it could make sense that it?s up,” said Patrick Comack, communications analyst with Guzman & Co., referring to the 29% year-to-date increase in offer amount from last year. “But right now it?s totally dead It?s gone.”
Imminent IPOs in the communications industry are getting little encouragement from some of their predecessors. Stock shares for many of last year?s IPOs have enjoyed only a brief prosperity before crashing back to earth.
Northpoint Communications Holdings Inc. (NNM:NPNT) of San Francisco priced at $24 when in went public on May 5, 1999, and it reached a 52-week high of $34.75, but it had hit penny stock status by earlier today, when it was trading at 50 cents. Northpoint had dropped from $2 the day before, following the decision of Verizon Communications(NYSE:VZ) to back out on a deal to acquire the company.
Another company, Rhythms NetConnections Inc. (NNM:RTHM) of Englewood, Colo., priced at $21 on April 7, 1999, and had a 52-week high of $50, but by today had dropped to an abysmal $1.09.
This is why communications IPOs, including good companies with strong financial standing, are leery of jumping into the public market.
“There are quite a few high profile deals in the pipeline waiting to come out,” said Comack. “They?re just waiting for a better market backdrop. There?s just a lot of business that is waiting for a better market. It?s just dried up.”