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EarthWeb Plans IPO Next Week

Once upon a time, not too long ago, a stock market debut from an Internet company with minimal revenue and ballooning losses wouldn't have seemed out of the ordinary.

But with all that's happened in the new-issue market in the past couple of months, what exactly is IPO hopeful EarthWeb thinking?

EarthWeb - which has created a number of Web sites targeted at computer professionals, anchored by its flagship Developer.com - is hoping to sell 2.1 million shares at between $12 and $14 each in a deal headed by J.P. Morgan, an underwriter having a tough year and one not particularly known for technology deals.

The company held a road-show investor presentation in New York on Wednesday and is slated to go public during the week of Nov. 9.

It's clear that EarthWeb and J.P. Morgan are hoping that the market's impressive rebound - especially in the small-cap sector - since hitting bottom on Oct. 8 will convince portfolio managers to take another look at the IPO market and at the previously red-hot Internet sector.

But observers are skeptical. "I'd be very impressed if they got out next week," said Paul Bard, analyst at IPO research and asset-management firm Renaissance Capital. Added Steve Tuen, research director at IPO Value Monitor: "This one caught me by surprise."

In light of EarthWeb's $1.9 million in revenue and $5.3 million in losses for the nine months ended Sept. 30, this concept story could be a tough sell on the market.

The last Internet company in the same early-stage league as EarthWeb that was able to make its U.S. stock market debut was 24/7 Media (TFSM), which came out way back on Sept. 24. (Online person-to-person auctioneer eBay [EBAY] managed a wildly successful initial offering in October, but that profitable firm had an appeal all its own.)

Meanwhile, the IPO market has been littered with Internet deals - names like NetGrocer, Computer Literacy, Internet America, Value America and Audiohighway.com - that couldn't go the distance. Only two weeks ago, high-profile Net offerings from Theglobe.com and Healtheon had to pull out at the last minute.

One source familiar with the EarthWeb IPO plan and the road show who wished to remain anonymous said some institutional investors seemed rather interested in participating in the deal, but added it "probably isn't a blowout."

EarthWeb's traffic has been weak in comparison with that of consumer-focused competitors like CNET (CNWK) and CMP Media (CMPX). The company has had about 1.4 million unique visitors a month, compared with nearly 8 million for CNET.

But the company expects those numbers to pick up, followed by a dramatic rise in revenue as advertisers come to appreciate the site's highly focused audience of information technology professionals. According to Renaissance's Bard, the company sees sales rising to $18 million in 1998 and more than $37 million in 2000.

If EarthWeb can succeed in meeting those goals, its beginnin valuation of just more than $100 million (at the midpoint of its estimated pricing range) would look much more reasonable, Bard said.

Pundits agree that the EarthWeb is critical for other Internet issuers, such as Xoom and InfoSpace.com, that are still in the pipeline. "If it makes it to market and does well, that will be a great help to the faces pressed against the window," said John Fitzgibbon, editor of The IPO Reporter.

Written By Darren Chervitz

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