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IPOs Sparking Interest Again

Wall Street: Heavy demand for new shares sends EarthWeb, Fox and MONY Group off to a strong start.

November 12, 1998|From Times Staff and Wire Reports

Three companies made smashing stock debuts on Wall Street on Wednesday, signaling a revival in investors' hunger for initial public offerings--a key source of capital for fast-growing businesses.

In the day's biggest surprise, shares of EarthWeb Inc., a New York-based provider of online services to other information technology companies, rocketed from their initial offering price of $14 to close at $48.69 on Nasdaq, for a 248% one-day gain.

That made it the second-hottest IPO ever, trailing the nearly 249% one-day gain by Broadcast.com--another Internet related issue--when it hit the market on July 17.

Two other new stocks also were well-received on Wednesday:

* Shares of Fox Entertainment Group, the spinoff from Rupert Murdoch's News Corp., rose $2 to $24.50 in their first day of trading on the New York Stock Exchange. The company raised $2.8 billion on Tuesday by issuing 125 million shares at $22 each.

* MONY Group Inc., parent of one of the nation's oldest and largest insurance companies, gained $4.63 to $28.13 on the NYSE, after issuing 11.25 million shares at $23.50 a piece.

Despite the heavy demand for the new stocks, the stock market overall closed broadly but modestly lower. The Dow Jones industrials fell 40.16 points to 8,823.82, the third straight decline.

Amid global markets' extreme volatility in recent months, scores of companies shelved plans to go public rather than risk a poor reception--or no reception--for their shares.

But that dearth of new shares means "people are starved for good deals right now," said Randall Roth, an IPO analyst at Renaissance Capital Corp.

Indeed, Fox and MONY Group were able to raise more money than planned in part because investors looking for new stocks have had slim pickings recently.

A revival in interest in IPOs is a good sign for the U.S. economy, because without the ability to raise capital in the stock market many promising businesses might have to shelve expansion and hiring plans.

EarthWeb's stunning debut may prove most heartening to other small companies hoping to go public--or at least to such small companies tied to the Internet.

EarthWeb provides news and information, research resources and programming software for computer programmers and developers and others who work in the information-technology industry and on the Internet.

The worldwide market for information-technology products and services will grow to about $1.1 trillion in 2001 from $755 billion in 1997, according to International Data Corp., a research company that tracks trends in technology.

EarthWeb's underwriter, J.P. Morgan, offered 2.1 million shares to investors. Given the demand, analysts noted that the company could have offered many more shares.

Yet EarthWeb, basically a startup firm, hasn't yet turned a profit. Its loss for the first nine months of 1998 was $5.3 million on revenue of $1.9 million.

But with the resurgence in interest in many Internet stocks in recent days, "The timing for EarthWeb could not have been more perfect," said David Menlow, president of the IPO Financial Network in Springfield, N.J. "If it had come out two weeks ago, its doubtful that it would have gotten this kind of premium."

In the next few months, analysts said IPOs from companies such as Ticketmaster Online-CitySearch Inc., Infinity Media and E TEK Dynamics will be viewed as important tests of whether the new-issues markets can hold onto its new momentum. A deal expected today: theGlobe.com, a World Wide Web site builder, will offer 3.1 million shares at an anticipated price of $8 a share.

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Fast Way to Riches

EarthWeb's initial public stock offering on Wednesday recorded the second-biggest first-day percentage gain ever, narrowly behind the IPO of Broadcast.com in July. Some of this year's Internet-related IPOs and their first-day gains:

Broadcast.com (July 17): 249%

EarthWeb (Wednesday): 248

EBay (Sept. 24): 163

Broadcom (April 17): 123

GeoCities (Aug. 11): 119

Inktomi (June 10): 100

CDNow (Feb. 10): 38

Source: Bloomberg News

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