Commentary

Internet IPOs: Hot or Not?

For anyone worried about Web 2.0 morphing into Bubble 2.0, few signs could be more ominous than the return of the Internet IPO. So when comScore Inc. filed for an $86 million public offering last month, followed quickly by Dice Holdings' (parent of tech-job site Dice.com and eFinancialCareers.com) filing for a $100 million IPO, fears that we're back in helium land seemed to be confirmed.

After all, the term Internet IPO, like reality TV, had become an oxymoron in recent years, as public investors shunned the high-tech sector following the dot-com collapse. Buzz-generating startups with little revenue and no profits were out, and sound business fundamentals were in again on Wall Street. On top of that, the Sarbanes-Oxley Act ensured going public would never seem so inviting again.

But now stirrings of a revived public market are appearing, as the amount raised by venture-backed companies in IPOs quadrupled to over $2 billion in the first quarter compared to a year ago. Wall Street has flung open the doors to the IPO club and everyone's invited back.

ComScore was launched in 1999 at the height of the dot-com boom and its monthly Web ratings have since become crucial to the Internet media industry. The Internet resurgence has fueled the company's growth: Revenues were up 33 percent, to $66 million last year.

On hand to help comScore cash in with its IPO are a familiar line-up of blue-chip professionals including investment banks Credit Suisse Securities and Deutsche Bank Securities, and Silicon Valley law firm Wilson Sonsini Goodrich & Rosati. In other words, the same players that helped inflate the late 1990s bubble by rushing companies to market prematurely are reprising their roles. ComScore and Dice Holdings at least are profitable companies. Going public in late March was mobile game developer Glu Mobile, which last year lost $12.4 million on $46 million in revenue. After raising $84 million in its offering at $11.50 a share, its stock price has since fallen back to about $10.

In the IPO pipeline is content-delivery specialist Limelight Networks, which lost $3.7 million on revenue of $64.3 million last year and is looking to raise a whopping $201 million from public investors.

More Web businesses are likely to follow Limelight into the IPO spotlight. But a housing market slide could put an end to the party just as it's getting started. A recent Merrill Lynch research report suggests that housing prices could fall 10 percent this year and force the United States into a recession.

That scenario would have a ripple effect on Web 2.0 companies, slowing online ad growth and reducing valuations for Internet startups. eMarketer already lowered its forecast for Internet ad growth to 19 percent for 2007 in light of our economy.

To avoid crash 2.0, perhaps companies this time should aspire to virtual IPOs where they can simulate the rewards of raising millions minus the risks. And Sarbanes Oxley.

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