LV company faces quirky IPO market

David Strow

Wednesday, July 14, 1999 | 12:05 p.m.

If everything went according to schedule, Travelscape.com Inc. of Las Vegas would have been a public company by now.

But the road to trading on the NASDAQ stock market has proven anything but smooth. The company has repeatedly delayed pricing dates for the past month, though it now says it is on a "day-to-day" approach to its $55 million initial public offering. Lead underwriter U.S. Piper Jaffray has the offering scheduled for this week.

The company hopes to net $49.9 million from the IPO, assuming it is able to sell 5 million shares at $11 per share. Travelscape said it plans to spend $40 million on its Internet business over the next 12 months.

Travelscape.com sells discounted hotel rooms and airfare tickets, primarily over the Internet. At this time, virtually all of its business comes from sales in Las Vegas.

The company, restricted from saying much to the press and public before the IPO, has been vague about its delays. For now, it appears to be sticking to its original line: Unfavorable stock market conditions.

"We won't attach a date to when it's going to happen," said spokesman George McCabe. "We aren't the only one on hold, as far as I understand."

At first glance, that might seem like a smokescreen, for the market has been hot for new Internet stocks.

The Internet Stock Report, produced by internet.com senior analyst Steve Harmon, showed that 17 new Internet issues had risen an average of 26 percent from June 24 to July 7. The group was up 226 percent since their IPOs.

IPOs in the past two weeks have been booming as well. Musicmaker.com went public July 7, and promptly rose from $14 to $23.94 its first day. Ask Jeeves, a new search engine, went from $14 to $65 at its July 1 debut. And Commerce One Inc., a producer of Internet-based commerce systems, went from $21 to $61 after its July 1 IPO.

"There's no doubt that when you have a moonshot, you're in the headlines, and you get good PR," said Chris Nerney, a senior analyst with the Internet Stock Report. "It's hard to put a price on that.

"If it's a really strong offer, an A-list underwriter, and really strong revenue growth, you'll do well in most any market. For marginal companies, timing has a lot to do with it."

But for an Internet company, where the stock goes in the pricing range is critical. Travelscape.com has set a range of $10 to $12 per share -- but analysts consider it crucial for the stock to go out at $12.

"If the stock comes out at $12, it will certainly be a reaffirmation that it's in good shape," said David Menlow, president of Millburn, N.J.-based IPO Financial Network. "At $11, it would be perceived as a stumbling block. If it comes out at $10, this stock is at risk of being taken out and being shot. If it's in such good shape, why would it be at $10?"

That's getting trickier for Travelscape.com or any other Internet IPO. While some Internet stocks boom, many others get lost in the shuffle as record numbers of Internet companies go public. More than 100 Internet companies have gone public this year, 32 in June alone.

Of those 32 IPOs, nine gained more than 50 percent on their first day. But three had zero gain, and three more lost ground from their IPO price.

But Travelscape.com may get a boost from its underwriter. On Tuesday, U.S. Piper Jaffray underwrote the IPO of CommTouch Software, which offers branded e-mail services to large telecommunications companies. CommTouch priced at $16 per share, opened at $21, and closed at $24 -- a 50 percent gain for IPO investors.

"That adds a lot of positive momentum to an underwriter's quiver of offerings," Menlow said.

Menlow is projecting that the stock will open at a 5 percent to 7 percent premium over its offering price.

Menlow, who has studied the Travelscape.com offering, said another difficulty is the sector occupied by the company. As a online travel company, it is facing a rather skeptical investor market, he said. Most investors, he said, are pouring investment dollars into competitor Priceline.com. Though Travelscape.com is a different concept, the company will have to convince investors it isn't just a clone of other travel Web sites.

"We think it'll be O.K., and certainly the growth of the company is supportive of higher valuations as the stock moves on," Menlow said. "The difficulty is whether there's enough sizzle in this package to get the investors away from what's hot right now."

Legal issues can also cause delays. The company is facing a brewing legal challenge over the rights to its name, but Travelscape.com denies that is the reason for delaying its offering.

"The company recently received a letter from a party claiming rights in the Travelscape name asking us to cease using the name, and we are seeking further information from this party," Travelscape.com said in a document filed June 23 with the Securities and Exchange Commission.

"The claim is unfounded, and I believe it may already be resolved," McCabe said. "It is in no part the reason the IPO is being held back right now."

In April, Travelscape.com acquired the trademark rights to "Travelscapes Vacations" from one company. Later, it acquired an application for the rights to "Travelscape" from a separate party.

The company has applied for the rights to "Travelscape.com" with the U.S. Patent Office, based on its ownership of the Travelscapes Vacations trademark and the Travelscape application. But the acquired Travelscape application, along with a separate Travelscape application filed later, were both rejected by the U.S. Patent Office, the company said in its SEC filing. Travelscape.com said it believes it will prevail in its pending application, but admits it cannot assure such a victory.

Nevertheless, Travelscape.com is preparing to fight it out with other similarly named companies. Company officials plan to issue letters to every other company in the United States using "Travelscape" in their names, demanding that all cease and desist on use of the name. Travelscape didn't specify how many U.S. companies use this name, only calling them "numerous."

These applications may trigger further legal disputes by companies alleging that Travelscape.com infringes their own rights, the company said. Travelscape.com added that it did not know if its use of Travelscape preceded its use by any other company.

It is likely Travelscape.com will not be the only Internet IPO this year in Las Vegas. Lowestfare.com, an Internet discount travel company owned almost entirely by Stratosphere and Arizona Charlie's owner Carl Icahn, has also filed for an IPO.

Lowestfare.com hopes to sell 7.5 million shares between $11 and $13 per share, which could raise as much as $97.5 million. There's no word on when pricing on its shares will occur.

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