Seeing the potential for another Amazon.com, investors pushed the stock of online software reseller software.net (SWNT) up 47 percent above the company's initial public offering price.
Stock in the San Jose, California, company debuted at $9 a share -- raising $45 million for the company -- and rose $4.25 to $13.25 by the close. It traded as high as $13.88 on Nasdaq.
Investors apparently saw a lot to like. Like Amazon, a profitless online bookseller that's worth US$4 billion on the stock market, software.net has no burdensome brick-and-mortar stores. It sells 34,000 popular software titles, like Microsoft Office and Quake, through its Web site. Its original backers include Microsoft co-founder and billionaire investor Paul Allen.
"I've been saying if you like Amazon at $4 billion, you'll love this one at $400 million," said Francis Gaskins, editor of Gaskins IPO Desktop.
But a closer looks reveals that software.net is no Amazon (AMZN).
The company was recently spun off from another Paul Allen venture, CyberSource. As part of the separation, software.net had to hire new management, so its executive team was just 2 months old when it filed for an IPO in April.
It's still far from making a dime. It lost $5.4 million on revenues of $17 million last year.
And the name isn't exactly a household word. Although online software sales are projected to total $2.3 billion by 2002, according to a Jupiter Communications report, there's no indication that shoppers will remain loyal to any particular site.
"It was one we were not too keen on," said Ryan Jacob, director of research at the IPO Value Monitor and portfolio manager of The Internet Fund. "It's really too soon to see if it's got what it takes."
Fans are counting on CEO Mark Breier, a former vice president of marketing at Amazon.com, to make software.net the next great Internet store.
His task will be to differentiate software.net from a growing list of other online software sellers like Egghead.com (EGGS) and Cyberian Outpost, which recently filed to go public.
He also has to establish a loyalty among customers to the software.net brand, a tough task in this business.
"There's no customer loyalty for software the way there is for books," Gaskins said. Most people buy more books than software, so it won't be as easy getting return customers.
software.net does have some important marketing partners, including America Online (AOL), Excite (XCIT), and Netscape Communications (NSCP). To become the exclusive software reseller on parts of AOL and AOL.com through 2001, software.net is paying $21 million, plus a percentage on all sales made. Financial details of the deals with Excite and Netscape were not disclosed.
"I think it's safe to say that software.net will remain one of the top three or four in electronic software retailing, but it's not yet clear if they can be No. 1," said Nicole Vanderbilt, an ecommerce analyst at Jupiter Communications.
Analysts said software.net's first-day performance is an indication of the market's hunger for Internet issues, not necessarily for good companies.
"They need the money and felt the public market would be receptive to this," said Jacob. "They were right."
