September 30, 1998 6:35 PM PDT

Not every tech IPO can be an eBay

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September 24, 1998
Internet audio aggregator audiohighway.com hopes to follow in the successful footsteps of both its primary competitor Broadcast.com and recent IPO standout eBay with a public offering next month.

But some observers remain skeptical that the current IPO climate--especially for smaller Net companies like audiohighway.com, which plan to offer warrants in addition to stock--has rebounded since the market took a turn for the worse in August.

Several Net companies have delayed their public offerings in hopes that volatile stock markets will regain some stability. Among them are TheGlobe.com, NetGrocer, and uBid. Investment bank Goldman Sachs--an underwriter for eBay, Inktomi, and RealNetworks' IPOs--postponed its public offering just this week.

The outbreak of cold feet hasn't stopped audiohighway.com from forging ahead with its plans to go public, however.

The company is proposing a unit offering, which means it will offer 2 million "units"--in this case 2 million shares of common stock and 2 million warrants to buy shares at 150 percent of the offer price--for up to five years. Its stock would trade on the Nasdaq Composite Index under the ticker symbol "AHWY" and "AHWYW" with an initial pricing range of $12 per share and $15 per unit. The company hopes to raise about $27 million through the offering, which will be underwritten by Paulson Investment.

Data management company Muse Technologies also is planning a unit offering in early November, and to date those plans remain on track.

But industry-watchers already are questioning whether a unit offering is a sound investment, concerned that the strategy does not endear companies like audiohighway.com and Muse to analysts.

"The lower-tiered companies are the ones that tend to resort to gimmicks," said David Menlow, president of the IPO Financial Network, "And unit offerings are viewed as gimmicks."

After peaking in 1986 at 122, unit offerings have declined as a percentage of the total IPO market during the last five years. In 1994 about 15 percent of public offerings were unit offerings, but so far this year only nine of 343 IPOs--less than 3 percent--were unit offerings, according to investment research firm Securities Data.

Many companies steer clear of IPOs offering units because they "tend to be smaller companies and development-stage companies," said Ken Fleming, an analyst at Renaissance Capital's IPO Fund.

Audiohighway.com is going ahead with its plans to price in mid-October, but Menlow cautioned that "it's going to be a tough row to hoe because, ever since the eBay offering, the bar has been raised for Internet companies."

eBay, an online auctioneer, broke a dry spell in the relatively soft IPO market last week. The company jumped out of the starting blocks by nearly tripling its share price during its initial public offering, the first since late August.

Comparisons to Broadcast.com and RealNetworks are inevitable, but not logical, analysts said. Both companies widely are viewed as market leaders in their respective fields, Webcasting and streaming audio technology.

In fact, Broadcast.com, formerly named AudioNet, can claim bragging rights as one of the most successful IPOs in history. It more than tripled its offer price in July. Then, only a few weeks later, its shares spiked as a result of increased traffic from users downloading the video of President Clinton's grand jury testimony regarding his relationship with a former White House intern.

"Any company that's like Broadcast.com has some cachet among investors given how well Broadcast has done," Fleming said. "The Internet has been in and out of favor, [but] eBay proved there is still some interest."

Talk like that could be fueling audiohighway.com's ambitions for the public trough. But some speculate that the company, with its Listen Up portable audio device for downloading and storing FM-quality audio programs, is attempting to go public despite naysayers in the investment community and despite volatile markets because its survival depends on gaining stronger financial footing.

The Cupertino-based company's AudioWiz client application, required to listen to audio of news and entertainment programs and books-on-tape, is currently available only for Windows 95 and Windows 98. Audiohighway.com is planning to ship versions for the MacOS8 and Windows CE next year, and an infusion of capital now certainly would help.

"They may need the money now or it's not going to matter later," said Renaissance Capital's Fleming.

 

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