- The Observer, Sunday 15 August 1999
If parallels can be drawn between the unpredictability of US high-tech shares and the emotional ups and downs of adolescence, the UK market must be a spotty child on the cusp of puberty.
Across the pond, market conditions are scaring off all but the most confident companies from stock market listing. Last Thursday, six high-tech IPOs (initial public offers) were postponed.
The big three Internet stocks, Amazon.com, Yahoo! and ebay, registered steady day-on-day gains, but all are trading at less than half their 52-week high. Yet in the midst of such gloom, Red Hat, an impish software company, had surged by Friday to a premium of nearly 400 per cent on its $15 offer price, and even George Soros's Quantum Fund has lost $700 million for being too bearish about Internet stocks.
In Britain all eyes are on just three share offerings - Freeserve, The Exchange, and Gameplay.com. By Tuesday's close Freeserve had fallen for nearly a week, with a final drop of 9 per cent to 178p. Despite being a rare profit-making Internet share, The Exchange fell back to 11p below offer price on the same day. But during the rest of the week both shot back up, propelled by better news from US technology indices, and, in Freeserve's case, news of a new deal on voice email.
But both are still within the 28-day stabilisation period. In two weeks' time, the lead managers, CSFB, will no longer be able to buy to stabilise Freeserve's share price.
Miles Saltiel of WestLB Panmure says they will need news coverage. 'This will be positive because they've got lots of money,' he says. So expect a raft of Freeserve stories cluttering our pages in two weeks' time.
The UK may be an immature market, but it is the US market's relative maturity that makes life tricky for IPOs. Most of this week's offerings, including mortgage.com, failed to fizz or were broken, trading below the offer price. More than 14 per cent of high-tech IPO's have broken in the past year.
Analysts are more discerning. Red Hat's success is based on it not being an Internet stock. It sells a commercial version of Linux, the fastest-growing operating system in the world.
Cisco's healthy earnings report on Tuesday gave the sector a fillip, pushing high-tech shares up in London and New York. 'The worst is over for the sector,' says Saltiel. But do the current murky conditions spell trouble for Freeserve, and for planned offerings from QXL and Lastminute.com?
'Nothing that has happened in the past two weeks will delay the upcoming flotations,' says Saltiel. As well as start-ups, a number of larger firms are toying with the idea of following Dixons' Freeserve lead. Egg, the online bank from Prudential, and the profitable Demon Internet division of Scottish Telecom are strongly fancied to float.
