Has the IPO Bubble Burst?

So far this week, four highly touted Internet initial public offerings have come out of the box flat. Some think their less than spectacular performance could be a signal that finally the supply of new IPOs has caught up with — or exceeded — Wall Street’s demand.

For instance, 1-800-Flowers.com, an online florist, sold more than $2 (US$) below its offering price of $21. In addition, Quotesmith.com, which provides consumers and businesses with instant insurance quotes, fell more than $1 below its offering price of $11. BigStar Entertainment Inc., which sells videotapes and digital videodiscs online, and Splitrock Services Inc., which runs a data communication network, also made disappointing debuts.

Some analysts say the sluggish performance of these latest IPOs has more to do with savvier Internet investors, beginning to question the wisdom of pumping hard-earned money in unproven Dot.Com startups, then to an overall slowdown of the market.

They have a point, when you consider that last week, 24 companies completed initial sales — making it the busiest week in 20 months. Last month, 64 came to Wall Street making it the busiest month since November 1997.

The fact still remains that for much of the year IPOs have been skyrocketing their first day out. For instance just last week, online pharmacy Drugstore.com more than doubled its first day out. Even MP3, a music-selling company deep in the red, more than doubled July 21, the day of its debut.

The Sky Is Falling

Some doom-and-gloomers are pointing to the happenings of this week saying that the IPO bubble has finally burst. They also point to recent analysts’ reports predicting a general slowdown of online brokers in the third quarter to add more credence to their end-of-the-world scenario. Meanwhile, almost on cue, its been reported that Bill Gates just filed to sell off 10 million of his shares in Microsoft Corp., for a whopping $847 million. Some point to this as the ultimate bad omen, even though selling off blocks of shares is something he does on a regular basis.

Not Sexy Enough

I’ve come to another conclusion as to why this week’s IPOs have fallen flat on their faces. It’s not because of an imminent stock crash, or the result of a bloated IPO market. I think it’s simply because selling flowers, insurance and videodiscs are businesses that aren’t sexy enough to spark most investors’ imaginations — even online.

I believe the IPO bubble is not in danger of bursting anytime soon. In fact, I don’t think it’s even reached its peak inflation

What do you think? Let’s talk about it.

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