FOOL PLATE SPECIAL
The brainchild of dot-com wunderkind Marc Andreessen came public today. Loudcloud is certainly no Netscape, but the fact that any Internet company could pull off an IPO in this market environment is impressive.
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Could the ice that has frozen the IPO market to high-technology firms be cracking a bit? Earlier this morning, Internet utility company Loudcloud (Nasdaq: LDCL) did the seemingly impossible and came public. Coming public in this depressed and gloomy market environment is no small feat for any company, and Wall Street is an especially chilly place right now for most Internet companies. This one, too: Loudcloud's IPO did have to take quite a few haircuts in order to secure sufficient investor interest. The initial offering of stock was priced at $6 a share, and the company sold 25 million shares, raising roughly $150 million in the process. This was down from earlier in the week when the company sought to raise $160 to $200 million by selling 20 million shares in the $8 to $10 range. When Loudcloud first filed with the SEC last autumn, it had originally hoped to sell only 10 million shares at $10 to $12 a piece. The big deal with Loudcloud Andreessen did not stay with AOL -- now AOL Time Warner (NYSE: AOL) -- long after it acquired Netscape in 1999. Loudcloud is being heralded as Andreessen's new brainchild, which is why the company is grabbing more than its fair share of attention. Unlike the consumer-oriented Netscape, Loudcloud's target market is companies that want to outsource the management of their Internet infrastructure. Loudcloud provides consulting, Web hosting, and a bevy of other Internet services to its clients. No Netscape Loudcloud's IPO could not be more different. The offering price had to be continually lowered to gain sufficient interest from Wall Street, and indications are that the shares will hit Wall Street more like a lamb than a lion. (Soon after it started trading, the stock was actually down slightly.) Moreover, because of the lowered prices for the IPO, the public now owns more than one-third of Loudcloud, up from the 10% ownership the public would have had at the company's initial pricing. Loudcloud needs the money Of course, Loudcloud is growing quickly and its profitability picture is expected to improve over the coming quarters, but the hurdles it must jump to sustainable profitability appear to be quite lofty. The big story today, however, remains that an Internet IPO actually happened in this market environment. Like Marc Andressen, Paul Larson graduated from the University of Illinois in 1993. But unlike Andreessen's Web browser, Paul's senior project sold exactly one unit. You can see Paul's complete stock holdings online. The Motley Fool is investors writing for investors.
Loudcloud is attracting so much attention because its chairman is Internet celebrity Marc Andreessen. Stop me if you've heard this dot-com fable before, but Andreessen created the initial prototype of the Web browser while a student at the University of Illinois and later went on to found Netscape at the ripe old age of 22.
When Netscape came public in the summer of 1995, it was the first of many blockbuster Internet IPOs in the late '90s and really started the dot-com goldrush. Back in 1995, the buzz before the Netscape IPO was deafening, and the stock was initially priced at $12. Due to enormous demand, however, the IPO price was eventually set at $28 -- and Netscape still managed to almost double in its first day of trading to close over $58. Netscape was able to gain a market capitalization over $2 billion in its first day as a public company, even though it had less than $25 million in trailing 12-month sales at the time and was in the red.
One of the reasons Loudcloud may have came public in this environment is because the company apparently needs cash. For the nine months ended Oct. 31, Loudcloud had generated a mere $6.6 million in revenue and a net loss of $175 million. Even after backing out several one-time charges and stock-based compensation expenses, Loudcloud's operating loss for the nine months was $55.6 million, almost 10 times the revenue it brought in during the same period. In other words, the financials are similar to that of many dot-coms -- including bankrupt ones.
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