Broadcast.com, an entertainment and news broadcaster on the Internet, became the hottest new stock issue of the year when its share price quadrupled on Friday, the first day of trading following its initial public offering.
Even though the Dallas-based company, formerly known as AudioNet, has never made a profit and says it won't do so for the forseeable future, investors regard it as a potential power in a new medium. Broadcast.com already broadcasts news and sporting events, like the Super Bowl, to users' computers through the global computer network.
"I think investors are looking at them as a potential NBC or the network equivalent," said Ken Fleming, a research analyst at Rennaissance Capital Fund, which tracks new issues.
Broadcast.com (BCST) shares were priced at US$18. Quickly after the first trade they roared to $74 before slipping back. In late trading, the stock was up $45.81 at $63.81 on heavy Nasdaq trading.
The opening followed a week of heavy interest from institutional investors. The company's underwriters, led by Morgan Stanley Dean Witter & Co., twice boosted the initial offering price, from the original $13 to $16 and then to $18.
Today's sale of 2.5 million shares raised about $45 million for broadcast.com. The company plans to use the money to expand its operations and fund day-to-day operations.
The 3-year-old company bills itself as an online broadcast network for entertainment, news, corporate conference calls, and sports. Already it has amassed 50,000 hours of programming, including canned television and radio broadcasts, concert footage, music CDs, and audio books from media companies. It sends the programming using streaming technology to PCs connected to the Internet and makes money through advertising. It also charges companies to broadcast earnings conference calls and videoconferences.
While the revenue potential for making a computer into a souped-up entertainment center is huge, it will take quite a while for any company, including broadcast.com, to cash in, because of a serious bottleneck: slow modems.
Most of the content that broadcast.com sends out can't easily be viewed with a computer equipped with a standard 28.8bps modem, analysts said. Right now, broadcast.com’s content is only readily viewed by customers with high-speed Internet connections, mostly through cable modems or T1 lines at the office.
"We're looking at 2000, 2001 before even 56Kpbs modems are widely adopted by consumers," said Vernon Keenan, an analyst with Zona Research.
Even when the bandwidth becomes available, it's not clear users would be willing to nestle up in front of their personal computers with a six-pack and a pizza.
"As an entertainment platform, the PC hasn't really taken off," said Patrick Keane, an analyst with Jupiter Communications.
Mostly because of the bandwidth bottleneck, broadcast.com's traffic has been held at a modest 400,000 users a day, compared to several million for Internet directories like Yahoo.
According to the company's prospectus, broadcast.com has never posted a profit, losing $6.5 million against revenues of $6.9 million in 1997. It forecasts continued losses for the foreseeable future.
"For most Net companies, it's hard to gauge the likelihood of success. With broadcast.com, it's harder than most," said Ryan Jacobs, portfolio manager of The Internet Fund.
Still, the company has clearly positioned itself as the leader in its niche, ahead of rivals like RealNetworks and MSNBC.
"Over the next year, and maybe two years out, they'll have a steady flow of income as high bandwidth moves into the home," said Mark Hardie, an analyst with Forrester Research. "Once that happens, anything might happen."
And success would definitely bring competition from gorillas like Yahoo and Microsoft. Said Jupiter's Keane: "They're the first one in this space, but the portal players are ultimately going to get in this business."
