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The fanciful stylings of an Internet stock offering

Wednesday, May 5 1999
Scrolling through the pages of the Web magazine Salon is like living a surreal dream. Whimsical, yet haunting drawings illustrate bawdy, yet thoughtful stories. At's newly acquired division,, cafe-intellectual intimates communicate anonymously.

In the upper right-hand corner of the recently attenuated Salon home page is a link that perhaps pays purest homage to the site's 20th-century literary surrealism. The link is labeled " Files for IPO," and it leads readers to 109 pages of text replete with the fantastic imagery and incongruous juxtaposition that mark Salon's fledgling journalistic enterprise.

This text is the prospectus with which hopes to induce members of the public to buy shares in the company's first public offering of stock.

The tale told is worthy of Bill Griffith, creator of the nonlinear cartoon Zippy the Pinhead. It portrays an enterprise that is hemorrhaging money, has no discernible prospect whatsoever of making a dime, yet wants small-time investors to hand over around $30 million to buy stock. "We lack significant revenues, we have a history of losses and we anticipate increased losses," begins an early stanza.

The prospectus then describes a company that has burned through more than $10.5 million since its launch in 1995, and lost $3.89 million last fiscal year on revenues of $1.2 million.'s annual revenue, according to the prospectus, equals less than .01 of what the company would supposedly be worth if it succeeds in selling its IPO at the $12-per-share price envisioned.

The company counts advertising banner swaps -- in which trades advertising icons with other Web sites -- as income, even though such swaps are actually one-for-one barter arrangements.'s business plan consists of turning eyeballs into credit card numbers by convincing readers to sign up for a fee-based private area where friends of Salon would pony up for T-shirts, coffee mugs, books, etc. This is the same business plan shared by thousands of other Web-based enterprises, the vast majority of which analysts predict will fail.

But as in the best surrealist literature, the prospectus' greater significance lies in its reflection of the subconscious stirrings of society at large. In the soul of turn-of-the-millennium America, an ongoing frenzy over Internet stocks is so fevered, and day-trading investors are so apoplectic, that's IPO just may work.

The band of former San Francisco Examiner employees who started this point-and-click literary journalism experiment four years ago may walk away millionaires, even though the company they founded has yet to, and may never, turn a profit. Giddy day traders may run up the value of fundamentally worthless stock, and the new-Internet-economy will come to even more closely resemble a landscape by Salvador Dali.

"I've been looking into making a bid, but I'm a little deterred by the speculated numbers I've found. Apparently, the bids are expected to go as high as 30 or 40 dollars by June when the IPO closes," writes one poster to a Multimedia Gulch e-mail list. "But if someone knows a way to buy the stock for the 'suggested' value of $10-13.50, I'd be all ears. Has anyone on the list had any success with IPO's?"

A $40 share price would value -- a company that lists its own assets at about $3.4 million -- at nearly a half- billion dollars.

This melting-clock-and-centaur landscape is becoming standard scenography in the realm of Internet financing. Ever since hugely unprofitable companies like were bid to on-paper valuations higher than titans of American industry possess, the fledgling stock of absurdly troubled companies has done famously at the financing game., for one, was almost out of cash and was under investigation by the SEC for securities fraud when it sold out to Compaq Computer for more than $200 million, says Michael Pinson, an analyst at the financial Web site Market Mavens.

Investors started this lunacy by betting on the notion that the Internet world will eventually replace the real world in areas such as shopping, reading, socializing, and having sex. But company valuations have surpassed the logic of even the rosiest Internet-takes-over-the-world scenario.

"What with online trading and the madness that has accompanied it, it has turned Wall Street into a Las Vegas gambling casino. The amount of speculation in dot-com stocks will continue to get worse over the next few years. You're going to get ever-greater volatility in financial markets, and complete madness will continue to ensue," says Pinson, who plans to take his Web operation public soon. "God! I should hurry up and do an IPO," he says, while scrolling through the prospectus. "Don't quote me on that."

Emerick McDonald, who heads a technology stock fund for Amerindo Investment Advisors Inc., reads the prospectus and sees a typical Internet IPO.

"It's not completely unreasonable," he says. "Seriously, this is what's happening right now. You should go start an online magazine. It seems to be a path to riches."'s IPO thickens the new-Internet-economy-madness plot by going public via a little-tested stock-peddling technique in which the price is determined through an auction conducted over the Internet.

Conceived by William Hambrecht, a former principal at the investment firm Hambrecht & Quist, this format is designed to let Everyman get in on the Internet IPO frenzy. Called OpenIPO, it is a new Web-auction format that can be seen as a way to democratize IPOs -- or suck cash into the dot-com financing frenzy from a whole new layer of ignorant investors.

Under the OpenIPO scheme, Web surfers submit sealed bids by Internet after making a $2,000 deposit with W.R. Hambrecht. The shares are sold at the highest prices at which all shares can be cleared -- kind of like the way baubles are auctioned off on eBay.

"That's the latest rage, or it's about to become the latest rage. Ordinary folks will get access to IPOs. Instead of institutions. It makes it more democratic," says Ulric Weil, senior technology analyst at the investment bank Friedman, Billings, Ramsey. "Certainly, the guy who comes into the Internet is not as sophisticated, well-trained, or experienced as a major institutional investor -- obviously there is a difference there. But if he's willing to do his homework, he can still get a bead on the merits of this deal."

But such homework is hard to do using the prospectus. Like many such documents, the prospectus is an unseemly labyrinth that novices might find difficult to apprehend.

For instance, the prospectus says that will "complete a 1 for 2 split of our common stock before this offering is completed" -- that's to say it will merge the number of shares it has into half that amount. But other sections of the prospectus seem to conflict with this halving of the number of outstanding shares, and even employees of W.R. Hambrecht don't seem to know exactly what the "1 for 2 split" means.

"It doesn't add up to me," said one W.R. Hambrecht representative after flipping through the prospectus, consulting another W.R. Hambrecht representative by phone, then referring to the prospectus again. The representative referred SF Weekly to another representative in W.R. Hambrecht's San Francisco offices, who supposedly does understand the prospectus. He did not return our call.

But he needn't have bothered. Any explanation might have distracted from the pleasant, surrealist bliss evoked by the Salon manifesto: Life is a meaningless yet meaningful blur of philandering Republican congressmen, red-ink balance sheets, and half-billion-dollar IPOs.

As surrealist Andre Breton wrote in his Manifesto of Surrealism: "Radio? fine. Syphilis? If you like. Photography? I don't see any reason why not. The cinema? Three cheers for darkened years. War? Gave us a good laugh. The telephone? Hello. Youth? Charming white hair. Try to make me say thank you: 'Thank you.' Thank you."

Or, in the words of Bill Griffith's Zippy, who not long ago shared the columns of the San Francisco Examiner with founder and editor David Talbot: "My elbow is going to high school in Carlsbad Caverns.

About The Author

Matt Smith


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