Something fishy about this market…

There’s something fishy about the stock market. Fishy, as in red herrings.

The unexpected cancellation of Uniglobe Travel Online’s private share placement last week, blamed on “Internet-related market conditions,” looked like it might poison this year’s harvest of red herrings, the glossy brochures mailed to prospective investors when a company sells its stock to the public.

But something didn’t make sense about the news. Just a few weeks earlier, Web Week charted the meteoric rise of initial public offerings such as bookseller Amazon.com and chipmaker Rambus under the hopeful headline, “On Wall Street, Signs That Net Is Making Comeback.”

Now I know that Web Week is one of those slick trade publications that is supposed to write effusively optimistic things about its advertisers, but in this particular case it offered some hard evidence to back up its prognosis: four highflying Internet IPOs in the second quarter and one in the first. It looked like the halcyon days of early 1996 all over again.

Was Uniglobe seeing something in this bull market that the rest of us were overlooking? And if so, what did this bode for the ‘A’ list of IPO-ready interactive travel companies-Preview Travel, Internet Travel Network, TheTrip.com, Biztravel.com, and, of course, Pegasus Systems? I turned to Uniglobe Vice President of Operations Michael Dauberman for answers.

“The markets in high tech have softened,” he said. “The Internet travel sector is considered high tech and not transportation, which is unfortunate. Now we’re being looked at as a technical stock by investors. And technical stocks are very volatile.”

True enough. If the Dow Jones Industrial average is prone to mood swings in the post-8000 era, then the tech-heavy Nasdaq composite forgot to take its Lithium. Particularly last week, the small-cap markets were experiencing some remarkable ups and downs. “The market was just jumping around too much for us,” complained Dauberman. “We didn’t want to work with a market that would force us to give away more of the company than we needed to.”

However, when the same question was put to executives on IPO row, I got a much different response. “This is a great time to go public,” said WorldRes CEO Eric Christensen. “There’s nothing wrong with the market right now. Look at the analysts’ reports. Every year they double, triple, or quadruple their estimates of the interactive travel market. Look at all the venture capital that’s being invested.”

Christensen isn’t the only one who seems to have taken his cue from Web Week-even though he insists “we’re not focused on going public at the moment.” Pegasus is betting the farm on the bulls. Last month it filed a registration statement with the Securities and Exchange Commission to sell 3 million shares of common stock to the public, despite posting a net loss of $3.5 million in the last calendar year.

There’s optimism at Preview Travel, too, though apparently not enough to open its books to public investors and to go through the song and dance of a roadshow. “I don’t think we interpreted Uniglobe as a cooling of the market,” said spokesman Ron Pernick. “I think we’re going to see a number of stock offerings that do well and a number that pull back.” Preview is widely expected to either take its chances on an IPO or be acquired now that it has reached a watershed $2 million-a-week in bookings.

Xtra On-Line, which plans to go public in “the next one to two years,” according to spokeswoman Katrina Bawcom, is equally unconcerned with the market conditions that doomed Uniglobe’s stock placement. Xtra recently raised $5 million in a second round of financing through Austin Ventures, Applied Technology of Boston and BankAmerica Ventures. “The market is not bad,” Bawcom says. “Venture capital firms see great opportunities in online services.”

Which brings me back to the subject of red herrings. The Uniglobe Travel Online announcement made me believe for a moment that interactive travel’s red herrings were being killed off by an unpredictable market. With online commissions being cut and big players muscling their way into this sector, I feared my summer reading list of preliminary prospectuses would never see the light of print.

As it turns out, those worries are unwarranted. Uniglobe was less intimidated by bouncy equity indexes than the outlook for its balance sheet. It promptly restructured its share offering to raise a more modest $5 million through the sale of special warrants, exchangeable for shares at a pre-determined date. The new offering, for “serious investors only,” is more risky-and maybe, more lucrative.

And money is money.

Christopher Elliott is the author of Scammed: How to Save Your Money and Find Better Service in a World of Schemes, Swindles, and Shady Deals. Critics have called it “eye-opening” and “inspiring” — it’ll “grab your attention and won’t let go.” Order your copy now on Amazon, Barnes & Noble or iTunes.

Be the first to comment