|Is CRIO sleeper bargain because of the market |
Corio, Deal Of The Week, Prepares For Launch;
Thursday, July 20, 2000
Jeffrey R. Hirschkorn
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You thought the era of the moonshot – the 100 % first-day pop - was over? Think again. Analysts say the Goldman, Sachs-led Corio may very well rocket to outer space heights during its Friday IPO.
A rocket liftoff-type explosion may occur on Friday when Goldman, Sachs lights up Wall Street with another potential blockbuster IPO.
Tonight, Goldman, Sachs with the assistance of co-managers Merrill Lynch, Robertson Stephens and Epoch Partners, plans to price 10 million shares of Corio (ticker: CRIO) at talk of $11-$13.
Corio Creating A Sensation
Why is there so much hype for just another deal? It's quite simple: Corio, based in San Carlos, Calif., is an enterprise application service provider that furnishes clientele with the various support services required for an Internet company to grow. Those services include application implementation, integration and various upgrade capabilities.
"Of the IPOs on the docket for this week, Corio may attract the most attention," said George Nichols, IPO analyst at Chicago-based fund-tracker Morningstar.com. "Investors who chase opening-day pops while ignoring financial losses will love this stock."
Corio offers software applications from PeopleSoft (ticker: PSFT) and SAP (ticker: SAP) for ERP, or enterprise resource planning. For example, some of its customers include BroadVision (ticker: BVSN) and Commerce One (ticker: CMRC).
Corio In Advantageous Position
Corio has a lot going in its favor, analysts are quick to point out. Cahners-In-Stat reports that record growth of firms that use ASPs will propel Corio and other companies in that market to higher ground. Cahners estimates that by 2004, more than 3 million small businesses will be utilizing ASPs, up from a projected figure of 136,000 in 2001.
"With market projections like these, it's no wonder that hundreds of ASPs are setting up shop," noted Nichols. "Although, many are expected to disappear in the next few years, Corio is no two-bit player."
Corio Making Inroads On Sector Players
Further, Internet Research Group, an Internet consulting firm gives Corio a shot in the application service provider market to overtake the biggest firms. Usinternetworking (ticker: USIX) boasts 36% of the market while Breakaway Solutions (ticker: BWAY) holds 16%. Currently, Corio has 9% of the market.
One Corio Liability
However, one problem that could deter some small investors from looking at the deal is its financial situation. For the quarter ended March 31, 2000, revenues hit $1.1 million while losses checked in at $28.5 million.
Clearly, analysts are concerned by the negative figures on the income statement. One area that could hurt the firm concerns loss growth, analysts say. For example, during the quarter ended March 2000 losses checked in at $28.5 million, while for all of 1999 losses were $45 million. The problem stems from Corio's business model, which requires enormous cash to grow.
A Corio Counterbalance
Even so, Corio counterbalances the above by possessing another quality favored by analysts, and one that's currently very-much-in-vogue in Wall Street circles: the presence of high-profile venture capital investors. A glimpse at the firm's principal stockholders section reveals a venture capital base similar in potential to the batting order of the New York Yankees: explosive.
Kleiner Perkins Caufield & Byers is the firm's largest holder with a post-IPO stake of 23.5%, while affiliates of Ernst & Young maintain a 9.5% stake. Other high-profile investors include Norwest Venture Partners and Dell USA, the investment arm of Dell Computer (ticker: DELL).
"Corio's shareholders should be prepared to wait years for the company to turn a profit," concluded Nichols. "But these [venture capital investors] folks can afford to be patient; some of them are already big winners, having purchased shares at $0.47 each."