Shares of Xoom.com more than doubled in the first few hours of the company's public life Wednesday, reaffirming investors' holiday faith in Internet issues.
After opening at US$31, the stock climbed as high as $41.50 before settling back to close at $34.44. Not bad for a stock expected to price at about $10 a week ago.
The San Francisco company sold 4 million shares at $14 a share, raising $56 million from the offering.
Analysts had expected the stock (XMCM) to be a stellar first-day performer. All the signs were there. Monday, lead underwriter Bear Stearns & Co. boosted both the number and price of shares for sale in response to intense demand from institutional investors. Where institutional investors go, others will surely follow.
Moreover, the last few new Net issues have all soared on their first day, none more than homepage hoster theglobe.com, which shares similarities with Xoom.com.
Still, with Xoom.com's market capitalization now approaching half a billion dollars, some analysts thought the run-up had gone too far.
"It's lunacy," said Vincent Slavin, vice president of institutional sales trading at Cantor Fitzgerald. "This isn't investing, it's gambling."
Even with the cash infusion, some analysts wonder how well Xoom.com will fare in the long run.
Like most Net firms, Xoom.com is losing money. For the nine months ended 30 September, the company lost nearly $7 million on revenues of $5.1 million.
While Xoom.com resembles Wall Street darlings like theglobe.com (TGLO) and Geocities (GCTY), there are some critical differences.
All three companies host user-created homepages for free on their sites, but Xoom.com doesn't sell advertising on these pages as the others do. In exchange for free space on its servers, Xoom.com asks for a valid email address and the right to pitch offers for consumer electronics and software. It makes the bulk of its money, 69 percent, from direct-marketing sales.
