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The Day Ahead: 1Q IPO hits and misses

When the most exciting items on the IPO calendar this week are donut maker Krispy Kreme and a bunch of biotech offerings, you have to wonder what happened to all that dot-com enthusiasm from a few months ago

Internet IPO enthusiasm has left the building -- unless you have something resembling a real business. Simply put, investors aren't falling for the same old IPO stunts these days.

This week's IPO calendar is a microcosm of the first quarter -- there's just not a lot of original material out there.

Poor aftermarket performance among the first quarter crop of initial public offerings can be attributed to two "M" words -- me too and mediocre. Toss in the fact that more than 120 companies -- mostly tech firms -- hit the market and you have a recipe for disaster.

Without further adieu, let's review the first quarter. It was a quarter where an original concept such as selling cattle online or creating XML software worked in terms of aftermarket performance.

Among the winners tracked by IPO research firm Renaissance Capital, webMethods was the big star, gaining 594 percent through March 29. WebMethods hit just about every buzzword you can hit -- customer relationship management, extensible markup language and B2B. And its XML software was new to the market.

Other big winners tended to have either a new niche or real revenue, and, in some cases profits. The winners were the companies that made infrastructure for the Internet. The majority of the big gainers -- Quantum Effect Devices, Turnstone Systems, Avanex -- had something to do with speeding up the Net in a wired or wireless world.

UT Starcom cashed in with a 357 percent gain because it offered Internet infrastructure gear in China.

In fact, the top 10 IPOs for the quarter were notable for what wasn't there. Only one dot-com company (Register.com) made the list with a gain of 217 percent from its offering price of $24. The much ballyhooed IPO of Palm was also missing in action in the first quarter leaderboard. Palm has a gain of about 30 percent from its March 1 offering price of $38. Palm wasn't able to live up to market hype and a warning about falling gross margins didn't help matters.

As for the losers, the lesson is clear -- don't copy other companies. A note about our loser list: We only included companies that have traded more than a week. That’s why we left out an Internet flop such as ArtistDirect, which priced last week at $12 and now trades at 7 5/8.

The biggest IPO loser in the first quarter was VantageMed, which is similar to Healtheon/WebMD, which has done a nice job of acquiring every competitor in shouting distance. Throw HealthGate Data into the same unhealthy IPO category.

Dot.coms that focused on e-tailing also littered the loser list. Varsitybooks.com, which peddles textbooks online, has crumbled 56 percent since its February offering price of $10.

Pets.com had a nifty mascot and a big backer in Amazon.com, but investors weren't taking this puppy home as shares have fallen 50 percent from an offering price of $11.

Another dot-com with a lot of flash and no return was Buy.com. The company flooded the market with shares, actually had good first day debut, but has slipped 24 percent below an offering price of $13.

The first quarter IPO performance taught quite an e-tailing lesson. Good marketing doesn't ensure a good IPO (Pets.com), and selling things for less than you bought them (Buy.com) generally isn't a good idea.

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