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Prices of five Internet darlings fall back to Earth

The companies' stock prices, which went through the roof when they went public, have dropped dramatically in recent weeks.

Not even the Internet's most exclusive club, the five companies that in 12 months posted best first-day gains, have escaped the doldrums in dot com land.

Each now trades far below its first-day closing price or has slipped notch by notch from recent highs, a victim of wavering enthusiasm for Internet IPOs in a market concerned about the long-term business prospects of e-stocks. Three of the five are down an average of 68 percent from their first-day close; the others are down 64 percent from their highs.

"We've seen this movie before," said Ulric Weil, an analyst who follows companies such as America Online Inc. for the investment bank Friedman, Billings, Ramsey & Co.

Internet IPOs coming now are "too much of a good thing," he said, and "fewer and fewer meet" criteria for a top-line Internet company. Inc., an online community, has fallen 83 percent since it shot up 606 percent on its first day in November _ the greatest first-day gain in 12 months for an Internet IPO. It closed Friday at $11.56\, about $1.50 above its first-day closing price. Inc., a financial news site that shot up 474 percent its first day in January, has dropped 70 percent. Search engine Ask Jeeves Inc. is down 52 percent from its July debut, when it gained 364 percent, the third-biggest increase ever.

The fourth- and fifth-ranking IPOs were Inc. and Healtheon Corp., which lets consumers bid online for airline tickets and hotel rooms, has fallen about 59 percent since its late April high, and Healtheon, a medical-information Internet company, has fallen 68 percent since its May high.

Last week, reduced a secondary share offering and will not proceed with a $250-million debt issue, citing market conditions.

Something missing

Unlike Web companies such as America Online, the No. 1 online service, and, the largest Internet retailer, the club of five are missing some of the criteria that would help ensure their long-term success, analysts say.

"They were not viewed and are not viewed today as truly top-line (Internet) companies," Weil said.

The missing criteria are an "experienced and solid management team, addressing a well-defined but under-penetrated market, with demonstrable big potential (and) with competition that is not-yet overpowering," he said.

But other analysts say first-day gains say little about long-term prospects.

"Those companies with the strongest long-term operating prospects will continue to outperform the IPO market as a whole," said Internet analyst Jordan Rohan at Wit Capital Group Inc., who covers online and traditional media companies.

Down, postponed, unchanged

Across the board, Internet stocks have fallen about 29 percent since July 6. Two weeks ago, four IPOs fell below their offer prices in one day, and most of las week's Internet-related IPOs closed little changed or below their offer prices.

At least 12 out of 37 IPOs planned for last week were postponed, according to CommScan LLC.

New York-based IXnet Inc., which operates a global communications network for financial services companies, was unchanged Thursday, its first day. Westford, Mass.-based NetScout Systems Inc., a maker of technology to manage the performance of computer networks and software applications, rose 25 percent.

Healtheon and remain in the top 15 performing IPOs in the past 12 months, ranking 11th and seventh, respectively, according to Bloomberg Analytics. Ask Jeeves, however, now ranks 49th. ranks 86th. And ranks 172nd.

Bright corners

These reversals may serve as a caution for investors in Red Hat Inc., which sells a computer operating system that competes with Microsoft Corp.'s Window. Wednesday, Red Hat recorded the eighth-best first-day gain for a U.S. stock, surging 272 percent.

The stock surged again Thursday and Friday, giving the company a market value of nearly $5.7-billion, nearly double that of Blockbuster, which began trading Wednesday for the first time.

Last year, Red Hat lost $130,000 on revenue of $10.8-million, while Blockbuster, the world's largest chain of videocassette rental stores, lost $336.6-million on revenue of $3.89-billion.

Of course, and also temporarily held such extraordinary market values, of close to $1-billion or more, only to see them shrivel.