April 17, 2000 12:05 PM PDT

AltaVista IPO delay could bode poorly for market

Fate must be sending a message to AltaVista.

One of the oldest and best-known brands on the Internet seems to have some of the worst timing when it comes to the stock market. AltaVista's decision to postpone its initial public offering slated for today underscores a persistent theme in the search engine's rocky history, which has seen the company as ever the bridesmaid but never the bride.

Now it's a question of whether the CMGI-owned Web portal can pick up the pieces. There may be room for another leap into the market. But questions persist regarding whether the site can survive in a market already saturated by Internet behemoths such as America Online, Yahoo and Microsoft's MSN, which receive the majority of advertising dollars and distribution deals.

To industry analysts, the delay of AltaVista's IPO is another in a series of setbacks that have prevented the portal's multiple owners (CMGI is its third) from capitalizing on the site's potential.

Under the ownership of Digital Equipment, AltaVista failed to go public in 1997. And after Digital was acquired by Compaq Computer, the PC giant decided to sell AltaVista to CMGI last June for an estimated $2.3 billion.

"I just feel for them," said Charlene Li, an analyst at Forrester Research. "They were one of first search engines that I've used. And it annoys me that the experience has really degraded over the past few years because there has been lack of leadership there."

Today, AltaVista was expected to float 14.8 million shares in hopes of netting $258.5 million, according to a February filing with the Securities and Exchange Commission. The company was planning to stick to the filing's $18 to $20 offering price.

But with last week's historic drop in the tech-heavy Nasdaq, the environment couldn't be worse for an IPO. Investors have become more skittish about putting their dollars into Internet companies that are spending for growth with little revenue to show. Investor appetite also has diminished as a result of a glut in publicly traded Internet companies.

AltaVista joins a growing list of Internet companies that are delaying their IPOs because of poor market conditions.

AltaVista spokesman David Emanuel would not comment on when the portal plans to pursue its offering, as the company remains in an SEC-mandated quiet period. But one bad week for the Nasdaq does not mean AltaVista is throwing in the towel, Emanuel said.

"This is very much like a rain delay at a baseball game," he said. "It could be completed as soon as the weather clears up, or the game could be rescheduled later in the season."

Analysts agree that today's delay does not spell defeat. They expect AltaVista's parent company, Internet investor CMGI, to continue to aggressively pursue an IPO in the near future. And with Morgan Stanley as its lead underwriter, the IPO pursuit is far from over.

For now, the companies will likely sit back and wait for the right moment.

"The markets will tick back up again," said Vik Mehta, an equity analyst at Goldman Sachs who covers CMGI. "CMGI and AltaVista will be there at the right time to structure the right deal."

Although assurances for an IPO seem strong, questions persist regarding AltaVista's long-term viability once it becomes a publicly traded stock.

AltaVista is stepping into an already stratified market. Internet behemoths such as America Online, Yahoo and MSN continue to attract the lion's share of eyeballs and advertising dollars. Meanwhile, second-tier portals such as Lycos, Disney's Go.com, NBC's Snap and Excite are scavenging for what's being left behind.

Stocks in most of these second-tier portals have either declined or remained flat in the past year. And Disney and NBC's attempts to capitalize on the Web portal craze has met with lackluster response from investors, who'd rather put their dollars into the market's leaders.

CMGI has invested heavily in AltaVista. The company last fall unveiled an advertising campaign valued at more than $100 million to turn AltaVista into a more consumer-friendly Web portal to attract a more mainstream audience. The campaign featured the slogan "Smart Is Beautiful" and featured celebrities such as Pamela Anderson and chess master Garry Kasparov in its television spots.

But re-branding takes a lot of time and money. And simply throwing money into a massive advertising campaign amid the "dot-com" clutter may have proven more difficult than expected for CMGI to transform AltaVista's image.

"The assumption was that AltaVista had to re-brand itself," said Patrick Keane, an analyst at Jupiter Communications. "The online audience already knows the brand. It tried to branch out to an audience that typically doesn't visit them."

Forrester's Li questioned the wisdom in marketing AltaVista as another Web portal to challenge Yahoo. She said the company should have stuck to its roots as a premier search engine rather than opting for the design of the revamped site.

"The world does not need another broad-based portal," Li said. "CMGI hasn't done a bad job, and they've executed well. I just think they would have a stronger business model to advertisers if they could be more focused."

 

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