Yahoo! public offering suffers from poor timing Analysts say Netscape got vital first foothold

SUNNYVALE, CALIF. — SUNNYVALE, Calif. - Yahoo! Inc. has a profile like Netscape Communications Corp.: It makes well-known Internet software, has a first-rate investment banker and counts twenty-somethings among its founders.

The similarities end there.


"The way people are talking about Yahoo! is absolutely ludicrous," said McCabe Capital Partners fund manager Steve Zenker, who's not buying Yahoo! shares.

"The competition is way too fierce. They could be obsolete in two months."


Yahoo!, maker of software that helps people choose sites they like on the Internet, is expected to sell 2.6 million shares at $10 to $12 to raise as much as $31.2 million.

Lead underwriter Goldman, Sachs & Co. said the prospectus will be available today. Industry analysts said they expect the sale to occur within a few weeks.

Though the stock may soar in the first day, it's not likely to maintain Netscape-like levels for long, investors and analysts say.

Netscape, maker of the market-dominating Internet browser used to go from one place to another on the network, was so successful because it was the first company making a consumer product for the Internet to go public.

Yahoo! won't even be the second.

Competitor Lycos Inc. will sell 3 million shares in a $39 million offering next week. Other competitors, including Excite Inc., are waiting in the wings.

"The first stock in any group to go public is the one that gets the screaming results," said IPO Financial Network President David Menlow. "The rest rarely do as well."

Excite has a leg up on Yahoo! already, displacing the Mountain View, Calif.-based company from the most visible spot on Netscape's browsing software.


"Whoever gets to be the top button on Netscape is the major player," said Giles McNamee, analyst at First Albany Corp. "You need alliances that give you ubiquity, and Yahoo! lost that on Net-scape."

Netscape, which had Morgan Stanley & Co. as its lead underwriter, still trades at more than three times its offering price it closed yesterday at a split-adjusted $43.875 while many IPOs quickly falter after a spectacular first day.

One reason for Netscape's success: While it now faces a significant challenge from deep-pocketed Microsoft Corp., it has transformed the Internet into a household word. Yahoo! is coming out too late to have that kind of impact.

"If we start seeing premiums of Yahoo! like we had on Netscape, run the other way," Mr. Menlow said.

If Yahoo! does take off at first, it will be because the shares will likely be driven up by individual investors who hope to cash in on the lure of the Internet.

"Individual investors have dollar signs in their eyes," Mr. Zenker said. "They are all trying to get in, and it creates this artificial burst in the shares that won't last."


The Yahoo! prospectus contains 27 risk factors, including warnings about its brief operating history and competition that is expected to "increase significantly." Competition is expected from at least 10 companies, including America Online Inc., Digital Equipment Corp. and a joint venture between MCI Communications Corp. and News Corp.

Yahoo! said "the success of the company is dependent on the development of the Internet as an advertising medium," which hasn't happened. Yahoo! makes its money by selling advertising banners to companies that want their logo on Yahoo! screens.

Pub Date: 3/21/96