FINANCE
With 1998 over and done, the cork-poppings at eBay and Inktomi are being drowned out by the wails of a year's worth of losers left holding flutes of skunky champagne. Tech IPOs in '98 gave their worst performance in a decade. Memorialized as victims of global economic chaos, they were said to be suffering a "prolonged frost," a "full-time sabbatical." On the day the Dow plummeted 357 points, by late afternoon, the Dow Jones News Service had announced the End of the IPO.
Truth is, while average deal size was up ($66 million from $40 million in 1997) and the market looked rosier at year's end, a glance at finer stats reveals the grisly odds. Nearly 54 percent of tech IPOs launched by early November plunged below offer price, 12 percent more than in '97. Totaling only 85, the fewest since 1992, the deals scored the decade's lowest average return: 12.61 percent. Although that's far above the average 10 percent drop in IPO values overall, and magnitudes better than that in, say, leisure and recreation (-33), it's a huge reversal from the 65 percent average return for IPOs between 1990 through 1997. It's no wonder a record 36 tech offerings were withdrawn or postponed by early November.
But not all tech sectors fared poorly. While the largest group - software IPOs - lost 7 percent on average, service-related offerings gained 38 percent. And semiconductors, though still only 6 percent of all tech deals, claimed the largest average return: 46 percent.
Among major IPO underwriters as well, the carnage was not indiscriminate. According to research firm CommScan, US-based tech IPOs led by Hambrecht & Quist and NationsBanc Montgomery plunged below offer prices an average of 21 and 46 percent respectively, at press time, while the picks of Goldman Sachs rose an average of 101.
None of these numbers, however, answers the question on the minds of bankers and investors as 1999 begins: Was '98 just another dip on the bumpy road to riches? Definitely not, says Ruth Porat, managing director at Morgan Stanley. Most downturns are spurred by discrete events, she says, "but this time, you thought it was Russia, you thought it was Latin America, then it was hedge funds. 1998 was death by a thousand cuts."
Still, Porat and others are certain IPOs will go on. "New stock issues are the mother's milk of the modern investment community," says Cory Johnson of TheStreet.com. "Without new names on trading screens, traders don't have new markets to make, analysts don't have new stories to tell, investment bankers don't get shots at secondary offerings. These guys need IPOs."
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