San Diego Business Journal Nasdaq Volatility Clouds Offerings By Local Firms

San Diego investors were barely catching their breath last week from the steepest roller-coaster ride of falling and then fast-rising stock prices ever, when two local Internet firms came to the plate to issue IPO filings.

WebSideStory Inc., a firm that does Web site traffic analysis, and CollegeClub.com Inc., a portal offering a variety of consumer services to college students, filed S-1 statements with the Securities Exchange Commission, announcing their intentions to issue stock on the Nasdaq exchange.

Given the volatility on the tech-heavy Nasdaq the past two weeks, the reception for the local IPOs may be frosty, said David Allen, director of research for Granite Financial Group in San Diego.

"The whole Internet market is under a cloud right now," Allen said. "The environment is still receptive, but there's much more scrutiny and many of the dot-com companies will face immeasurably higher scrutiny compared to what they received six to nine months ago."

Bill Stensrud, general partner with Enterprise Partners, the largest San Diego venture capital firm with some $750 million under management, said what happened last week on the Nasdaq signaled an overall shakeout in the stock market.

"I think we've seen a fundamental restructuring of the IPO industry over the last 10 days," Stensrud said at last week's MIT Forum held at the La Jolla Marriott Hotel.

Stensrud said the bounce-back on Nasdaq wasn't universal. "Not all the stocks bounced back. Those that did bounce back were those with good fundamentals," he said, referring to Intel, Cisco, Microsoft and locally-based Qualcomm Inc.

Many of the stocks that didn't recover had short histories, unclear business plans, and a record of unprofitability, he said.

Back To The Basics

Previously, investors were willing to overlook such fundamentals in light of incredible run-ups on prices, but the latest sell-off portends a more selective and discriminating market, he said.

"Ultimately, a company isn't worth anything if it doesn't make money," Stensrud said.

That caveat could be damaging to CollegeClub.com, which revealed in its filing it lost more than $35 million since its inception five years ago. Last year its net loss was $25.7 million on $2.9 million in revenues, compared with a net loss of $3.8 million on $332,000 in revenues in the previous year.

The company has 255 employees, and an office in Austin, Texas. CollegeClub's revenues are derived from the sale of marketing campaigns aimed at college students. The Internet portal, which retails clothing, books and music, also provides voice mail messaging.

With more than 2 million registered users, it is one of the "stickiest" (repeat and longer time spent on a site) on the Internet for users in the 18- to 24-year-old bracket, according to Media Metrix, an Internet traffic analysis firm, the company said in the SEC filing.

CollegeClub is hoping to obtain more than $85.2 million in capital through its stock offering.

WebSideStory, formed in September 1996, is an "applications service provider," meaning it provides services to other businesses. The firm's software collects a variety of data about Internet usage, including unique users, time spent on specific sites, and "hits" sites receive.

However, in its SEC filing, the company said $8.5 million of its total $9.6 million in revenues last year came from advertising.

The company said it could lose customers or incur liability caused by the content of sites it hosts or provides links to that may contain obscene or defamatory material. Some of these sites contain material that is "controversial, adult, political, racial or religious," the company said in its filing.

Quiet Time

Geoff Johnston, WebSideStory's spokesman, declined answering any questions about the business, citing the SEC rules mandating a "silent period" once an IPO filing is made.

WebSideStory differs from many of its dot-com comrades in actually showing profits for two of its three years. Last year it lost $1.4 million on revenues of $9.6 million compared with a net profit of $237,000 on revenues of $5.5 million.

The company has 103 employees, including 51 in technical development and operations and has an office in France.

Its founders, Blaise and wife, Agnes Barrelet, who are natives of France, were paid $516,000 and $340,000 respectively last year, and hold 61 percent of the company's stock, according to the filing. President and CEO John Hentrich, who was hired late last year, earned $21,000 in salary and $1.2 million in stock options in 1999.

The company is seeking $57.5 million from the IPO.

Bruce Ahern, a San Diego high-tech consultant, said both local firms may do well when their IPOs are issued because each have business models that seem to be well thought-out and good management teams. He discounted the fact both firms have lost money, saying it's not unusual for a tech firm to lose money in the first five years.

He also downplayed WebSideStory's connections to the pornography industry.

"Let's face it, the Internet was built by pornography," he said.