(March 20) – “When it comes to the New Economy, Europe has put one foot in and found the water cold,” writes Peter Cook in today’s Globe and Mail.
“So Friday’s little adventure in Amsterdam, when a Dutch Internet service provider, World Online, came to market with the largest Web-related stock offer yet and ended a frenetic day’s trading up just 10 cents, reveals more than the fact that last week was a bad one for technology stocks everywhere. At midweek, the shares had been trading on the grey market in London at 75 euros ($107), so it looked as though the offer could not fail.
“At the close of business on Friday, the actual shares were worth 43.10 euros.
In pricing the issue before it came to market, its financial sponsors had decided that the four-year-old firm, which has no prospect of making a profit, was worth more than KPN Telecom BV, the Dutch national telecoms group. Investors plainly did not think so. Instead they treated World Online in the same dismissive way they have treated other New Economy newcomers, including Britain’s on-line reservations firm, Lastminute.com. Europe’s market for technology initial public offerings is, like its market for tech generally, a sometime thing.
“The Internet service providers that are rushing to float stock are hoping to emulate Freeserve PLC of Britain, now worth four times more than its issue price last summer, and Terra Networks SA of Spain, which tripled in price on its first day last November. But it is not so easy now. France’s new offering, LibertySurf, and next month’s flotation of Germany’s T-Online, look like winners because they serve big markets. But investors do not see any hope of profits in Internet service firms and they are wary of the exaggerated claims made by tech firms generally.
“This year, Europe’s most successful tech market, the Neuer Markt in Frankfurt, is slated to handle 160 new issues — a record — but there are many who doubt it can do this successfully. Last year, with fewer new issues, the market suffered an acute case of indigestion and underwent a 30-per-cent decline from March to September. The differentiation, a broker said, is between firms that are well known to the media and have a story to tell, and those that grab no headlines and flounder. Europe’s appetite for high-tech and the liquidity of its IPO market is no match for the United States.
“The most basic reason for this is that there are fewer private investors and fewer growth-oriented funds. Yet, it is also a fact that — as in North America — it is the hype surrounding technology IPOs and the instant billionaires they create that sells the New Economy to the masses. If a bear market hits tech stocks in the United States, the damage will be temporary. In Europe where Internet use is just one quarter of the North American level and e-commerce is in its infancy, the injury could last longer.