As seemed to be the case throughout the IPO market, 2000 saw fewer IPOs in the telecommunications sector than 1999.
From January to November, there were 58 telecom IPOs, down from 78 telecom IPOs during the same period last year. This year’s offerings averaged $114.6 million per company, an increase of more than 20% from the last year’s average of $95.5 million. However, the total in offer amount for telecoms in 2000 was still down from 1999, to $6.65 billion from $7.45 billion.
Shares have also taken a hit. Some of the larger telecoms have dropped in value but have still managed to hold their own. Vienna-based wireless provider Telekom Austria (NYSE:TKA) was trading at $12.88 a share on Dec. 19, down from its Nov. 20 offer price of $15.27. AT&T Wireless (NYSE:AWE) was trading at $19.31 on Dec. 19, below both its April 26 pricing of $29.50 and May 1 peak of $36.
“This whole sector’s been whacked so hard,” said Irv DeGraw, research director of World Finance Net in Sarasota, Fla., referring to the telecom industry.
Some of the smaller companies are not so fortunate. Despite its hype, the handheld wireless provider OmniSky (NNM:OMNY) was trading at $8.13 on Dec. 19, down from its Sept. 20 offer price of $12 and Sept. 26 peak of $23.88. Convergent Communications (NNM:CONV), a data and voice systems company, was trading a $1 a share on Dec. 19, drastically below its $15 offer price on July 19.
Penny stocks are not uncommon in today’s telecom market, even among IPOs less than 12 months old. “I’ve never seen so many deals trading at under a dollar by the end of the year,” said DeGraw. He blamed price reductions and increased competition in the telecom sector. “These guys are killing themselves for market share, and it may be a Pyrrhic victory,” he said.
Nonetheless, DeGraw said the outlook looks positive for companies building products with immediate cost benefit to telecom services, such as Peco II Inc. (NNM:PIII) and Novatel Wireless (NNM:NVTL.)
Last year, telecom IPOs enjoyed large infusions of venture capital that allowed them to build their infrastructure. Such investments were essential in building massive network companies like iAsiaworks Inc. (NNM:IAWK). This Internet provider caters to the huge, and potentially lucrative, Asian population, but requires vast cash reserves to build infrastructure, such as expensive installation of undersea cable. The company was trading at a measly $3.94 on Dec. 19, a fraction of its Aug. 3, 2000 pricing of $13. “We’ve definitely seen the end of the grand scale projects, and Asia Global Crossing was definitely a part of it,” said DeGraw.
But the hard, cash-draining work of building an Internet infrastructure could pay off. “Where they are and the way they are positioned, they have a pretty good future,” said Daniel J. Fletcher, analyst with Lehman Brothers in New York. “There is a very large population (in Asia,) where penetration of bandwidth infrastructure is growing. They have a big market opportunity and they have assets in the water and their competition is one or two years behind them.”
Nathaniel Cohn, analyst with Goldman Sachs in New York, said the skepticism haunting venture capitalists could result in even fewer telecom IPOs for 2001, particularly with emerging infrastructure markets. “If there continue to be pressures on spending and profitability, then the opportunities for infrastructure companies may be more limited,” said Cohn.
Despite the current “speed bump” in the market for IPOs, he added that long-term investments might bear fruit. “I think the macro picture, longer term, is quite positive, in that there is insatiable demand for bandwidth,” he said.
DeGraw said that next year’s telecom market will probably mirror the activity of the Q4 in 2000: money goes to companies with profitability, not just start-ups with big ideas.
“We are definitely going to see a return of the IPO market to fundamentals,” said DeGraw. “We’re going to need to see guys who have solid resources, solid growth and substantial profitability.”
Aaron Smith can be contacted at