Loudcloud debut doesn’t produce much thunder

The Associated Press
Saturday March 10, 2001

SAN FRANCISCO — Caught in a technology downdraft, Loudcloud Inc. barely made a peep in its stock market debut Friday. 

Shares in the Sunnyvale-based Web services company closed at $6.16 on the Nasdaq Stock Market, up 16 cents from its sharply discounted initial public offering price. Loudcloud helps to build and maintain the Web sites of other companies, a niche that isn’t expected to produce a profit for the company until 2004. 

Loudcloud’s offering represented the most closely watched IPO in months, largely because of its chairman and co-founder, Marc Andreessen. 

The 1995 IPO of Andreessen’s last company, Web browser maker Netscape Communications, helped launch the Internet stock craze. Netscape’s rise provided the bulk of Andreessen’s estimated $500 million fortune. 

Market observers were curious to see if Andreessen, 29, could work his magic again at Loudcloud and shore up the badly slumping IPO market. 

But Andreessen received a dramatically different reception this time around. 

Loudcloud slashed its IPO price in half before eking out Friday’s 3 percent gain. In contrast, Netscape raised its IPO price before the stock doubled in value on its first day of trading in August 1995. 

The times are much different now. Netscape’s IPO came in the midst of a bull market more willing to gamble on unproven companies dabbling in the Internet. 

Loudcloud pushed through its IPO amid a squall of investor pessimism that swept through Wall Street again Friday as the market reacted to more bad news from technology bellwethers Intel Corp. and Cisco Systems Inc. 

“It’s extraordinary that (Loudcloud) was even able to get this IPO priced in the face of these market conditions,” said Greg Gallo, a Palo Alto attorney who specializes in IPOs. 

Burned by huge losses over the past year, investors are especially leery of unprofitable Web-based businesses such as Loudcloud, which lost $107.6 million in the nine months ended Oct. 31. 

Venture capitalists now are advising their technology start-ups to string together three consecutive profitable quarters before pursuing an IPO. 

To make its IPO happen, Loudcloud had to make substantial concessions. The company originally hoped to sell 10 million shares for as much as $12 apiece. After investors balked, Loudcloud twice lowered the IPO price and increased the number of shares to 25 million to ensure it would raise enough money to stay afloat. 

After paying its expenses, Loudcloud will net $137.9 million from the IPO, according to a Securities and Exchange Commission filing Friday. The company raised an additional $5 million by selling 877,192 shares at $5.70 apiece to one of its business partners, Compaq Computer, according to the filing. 

The company’s other notable partners and customers include business consultants Accenture, America Online, Nike, Ford Motor, News Corp. and Blockbuster. The company says it has signed customer contracts totaling $120 million.