In an appropriate cap to a week of sizzling new stock issues, shares of FreeMarkets Inc., which hopes to become to industrial companies what online auctioneer EBay Inc. is to individuals, rose almost 500% in their first day of trading Friday.
The Pittsburgh-based company's stock (ticker symbol: FMKT) rocketed $232 to close at $280 on Nasdaq, a 483% gain from the $48 offering price.
That made it the fourth-biggest first-day gainer ever among U.S. initial public offerings. Eight of the top 10 IPO first-day winners are stocks that have made their debuts since Sept. 27 of this year--no small reason the Nasdaq composite stock index is up 65% year-to-date.
Despite warnings from Wall Street analysts and from market regulators against overpaying for young, high-risk technology companies, investors show no signs of halting the wild bidding necessary to get their hands on these stocks.
According to research firm Comm-Scan, 279 Internet IPOs this year have gained on average 90% in their first day of trading.
But the frenzy reached new highs this week, when shares of VA Linux Systems, a maker of personal computers tailored to use the Linux operating system, surged 698% on their first day of trading on Thursday--beating the previous record one-day gain set by Web site host Theglobe.com a year ago.
VA Linux closed Friday at $218, down $21.25. The stock had reached $320 this week.
Whether many investors know--or care--Theglobe.com today sells for $10.25 a share, down 79% from the peak price of $48.50 some investors paid immediately after the stock began trading.
FreeMarkets, however, would seem to have much more going for it, analysts argue.
The company arranges Net auctions that allow other companies to buy and sell anything from rock salt to printed circuit boards.
"It's a business-to-business play that is hot," said Lawrence York, manager of the $80 million Www.Internet Fund in Lexington, Ky.
Investors are betting more companies will tap FreeMarkets because its auction system can help cut costs. The company estimates it has saved clients--including 30 companies and governments--as much as 25% on purchases.
Such auctions may grow more than sixfold to $52.6 billion in 2002 from $8.7 billion in 1998, according to Forrester Research estimates provided by FreeMarkets.
Still, FreeMarkets will face "plenty of competition" for that growing market, York said.
One competitor, Chicago-based management consulting firm A.T. Kearney, set up its own auction service earlier this year, and says it is now the No. 2 provider of business-to-business auctions of industrial goods.