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New Net stocks popping bubble memories 25 Feb, 2007, 0241 hrs IST, REUTERS NEW YORK: Despite lingering echoes of the technology sector’s crash in 2000, online publisher TechTarget’s backers hope it will be the latest in a series of successful US Internet-related IPOs that indicate renewed enthusiasm for the sector.

TechTarget, which earlier this month said it could raise as much as $75 million, operates a network of 35 websites, each of which focuses on a specific information technology sector, such as storage, security or networking.

Since getting burned when the technology bubble burst in 2000, investors have been hesitant to put money back into the sector, particularly “dot coms” that shouldered much of the blame, said Scott Sweet, MD for IPO research firm IPOboutique.com.

But amid recent multiyear highs in the tech-heavy Nasdaq index and with the Dow Jones industrial average just shy of a record, investors are betting on a new field of Internet-related companies that are more mature than their counterparts from the late 1990’s.

“Clearly people would rather invest in a wildly hot company like Fortress Investment Group than a dot com,” Sweet said, referring to the high-flying hedge fund that recently went public. “But these companies are no longer just concepts without a business plan.”

Growing revenue

Needham, Massachusetts-based TechTarget, which matches up advertisers with information technology professionals, fills a specific niche within a market by using the Internet, with a blueprint followed by a number of other successful dot com IPOs of late, Sweet said.

Shares of Salary.com, which provides online compensation data designed to help managers determine how much to pay employees, rose as much as 33% in its US market debut earlier this month.

Stock in the company, which lost money in 2006, traded at $12.43 on Friday, up 18% from their $10.50 offering price. Stock in US Auto Parts Network, an online supplier of replacement auto parts, also rose as much as 21% in its opening, despite selling shares at the bottom of a forecast range. Shares of the company traded at $12.06 on Friday, up 21% from its $10 offering price.

Just as in 1999, investors are largely betting on a company’s growth potential, pushing valuations to lofty heights. US Auto Parts, for instance, has a hefty price-to-earnings ratio of more than 160 times annualised 2006 earnings.

Online health insurance company eHealth, which listed in October and whose shares have soared almost 80% from the company’s $14 offering price, trades at 60 times 2006 earnings, according to Reuters Estimates.

However, dotcoms must now have clear business plans, strong management and a track record of results to justify their high earnings multiples, Sweet said.

Companies are also waiting longer before going public, said Jay Ritter, a finance professor at the University of Florida, who tracks initial public offerings.

The median company age of 13 last year compared to only four in 1999, Ritter said. “(The IPOs) are not start-ups with seven people and an idea,” Ritter said. “The market is demanding more evidence that a business is working.”

Tech surge

Technology companies are the leading IPO filers with the US Securities and Exchange Commission and compose 22% of the firms poised to offer shares, said Maria Pinelli, who heads growth markets in the Americas for Ernst & Young.

“Most of the IPOs in this sector are being driven by the IT and computer services sector,” Pinelli said. In 2006, 15 Internet-related companies offered shares worth $1.6 billion, according to data tracker Dealogic.

To be sure, the offerings are still a far cry from 1999 when 311 deals from Internet-related companies worth almost $30 billion floated shares and had an average return of 90.5%, according to Dealogic.

However, after the tech bubble burst in 2000, Internet-related offerings plummeted to two in 2001 and rose to only nine by 2003. The number of offerings jumped to 25 in 2004, the same year online search engine Google first sold shares, but returned to 11 in 2005.

http://economictimes.indiatimes.com/articleshow/msid-1676229,prtpage-1.cms 7/23/2007 9:16:40 PM