November 16, 1999 4:10 PM PST
Webvan's shares sink after IPO frenzy
Shares in the online grocer closed down 2.12 at 16.06--near their offering price of 15--despite a successful first day performance that reached as high as 34.
Many investors had eagerly anticipated the public offering, which followed a delay because of concerns by the Securities and Exchange Commission about publicity surrounding the offering.
"Usually a stock will settle in about four to six weeks after going out because the quiet period has ended," said Jeff Hirschkorn, a senior analyst with IPO.com. "But they're still in their quiet period. I think people are developing a lot of skepticism whether they can make this model work. It's a risky proposition since they need a lot of money."
David Menlow, president of IPO Financial Network, said he was a fan of Webvan until Priceline entered into the grocery business in September.
"The next distribution point for Webvan is in Atlanta in the Year 2000, compared with Priceline, which already has its ducks in a row and has started to make a dent in food service," he said.
Webvan currently delivers groceries in the San Francisco market, with plans to expand into Atlanta next year. Priceline, meanwhile, covers the New York metropolitan market and offers discounts to winning bidders on their next trip to the participating store.
Webvan, which raised $375 million in the offering, also may be garnering concern that its performance on Wall Street will mirror that of competitors Peapod and Streamline.com. Online grocers face the same issues of razor-thin profit margins as their brick-and-mortar counterparts, but some Internet grocers note their margins may be slightly better because of lower overhead.
Peapod, a pioneer in the field that debuted in 1997, and Streamline, which went public in July, are trading off their 52-week highs.
"A lot of companies fall near their offer price and then take off," Hirschkorn said. "This might be one, but I think not."
Menlow, meanwhile, said he's concerned investors will lose confidence in the company's bigger picture if the stock languishes at $15.
"It's a potential problem if investors see other see Internet stocks running ahead on the upside. They may want to take their money out of Webvan and go somewhere else where they have momentum," Menlow said.
He added that other IPOs, such as Cobalt Networks, opened with a strong debut but have managed to maintain their skyward path.
Meanwhile, although Webvan's road show snafu is not expected to affect the reputation of CEO George Shaheen, portfolio managers said the episode has created a chilling effect for other companies' road shows.
Previously, companies freely distributed analyst information on how their companies' financials were expected to perform post-IPO. But now, institutional investors have to call the underwriter's sales representative to obtain the same information.