It was a day of glory for Inktomi Corp. (INKT). Even with a high-as-a-kite valuation of US$717 million, the search-engine technology company raised $40 million and attracted a frenzy of investors who drove the initial public offering from $18 a share to $36 over the course of the first day of trading.
"They're one of the best-positioned Net-related companies," Ryan Jacob, portfolio manager at The Internet Fund, said with unveiled enthusiasm. "A lot of their upside isn't going to be evident until the year progresses ... [but] they really are way ahead of their competition."
That may be so, but it's still pretty hard to figure out how a company that reported revenues of $5.8 million in fiscal 1997 and has accumulated $20 million in debt in its two and a half years of existence can command such a lofty market valuation.
"There�s no point in trying to understand the valuations being placed on Internet companies today," said Adam Schoenfeld, an analyst at Jupiter Communications. "You just can't take any traditional metric and justify the price."
However, he agreed with the popular opinion that Inktomi probably has a good thing going. "I do consider Inktomi in the bucket of companies I consider legitimate," said Schoenfeld, contrasting the San Mateo, California-based company with others whose stocks soared based on mere announcements of intentions to get into Internet-related businesses -- like K-tel Inc. (KTEL) and Market Guide Inc. (MARG), whose stocks flew on the news only to plummet days later.
Inktomi, however, is well on its way to being an established name in the Internet business.
Just three weeks ago, Yahoo selected Inktomi to replace Alta Vista as the search engine underlying its navigational guide. Inktomi also provides the search guts to CNET Inc.'s Snap, the search service that signed a joint venture agreement with NBC Inc. on Tuesday, and for Wired Ventures' HotBot search engine. Its technology also underlies Nippon Telegraph and Telephone's (NTT) goo search engine and will soon do the same for the Microsoft Start page.
Founded two years ago by a computer science professor and a graduate student at the University of California at Berkeley, the company's search software was quickly recognized for its ability to crawl over large volumes of documents and deliver comprehensive search results.
More recently, Inktomi unveiled its network caching software, which is designed to reduce bottlenecks on the Internet by storing some of the most popular online pages closer to users. It has compared this system to a local library that spares people long trips to the Library of Congress every time they want to read a book.
Inktomi recently entered two international licensing agreements for the network caching software and says it sees strong demand in Europe and Asia, where bandwidth can cost three to 10 times more than it does in the US. America Online, Digex, and Japan's NTT are all mentioned in Inktomi's prospectus as new customers for the Traffic Server caching service.
"This is the definition of a hot stock," said Abishek Gami, an analyst with William Blair & Co. in Chicago. "To have a relationship with Yahoo and Microsoft and a lot of the other major Internet players is very appealing."
However, Gami noted that Inktomi's business model is different from most of the Internet companies that have become favorites on Wall Street. It is a pure technology business that does not deliver any services or content packaging.
But for those not interested in playing the market, there could be another way to get in with what many see as a hot company.
According to a filing with the Securities and Exchange Commission, Inktomi "believes that its future success is dependent upon substantially increasing the size of its direct sales force, both domestically and internationally." The entire sales organization for the $717-million company consists of 15 people, or did during the April filing.
A notice for sales jobs, in both the United States and Europe, is posted on the company Web site -- just below the statement: "All positions are well-compensated, including equity in the company."
Reuters contributed to this story.
