Digex has 31% gain on 1st day

Beltsville provider of Internet services raises $170 million

Stock offering

July 31, 1999|By Mark Guidera | Mark Guidera,SUN STAFF

Shares of Digex Corp., a Beltsville Internet services provider, rose 31 percent yesterday in their first day of trading after being spun off by telecommunications upstart Intermedia Communications Inc.

Digex shares climbed $5.3125 to $22.3125 on the Nasdaq after being priced at $17 a share, raising $170 million for the company, which provides Internet services to businesses. Trading volume was 16.9 million shares.

The price rise, while healthy, did not match that of other recent offerings in the hot Internet sector. Drugstore.com, for instance, more than doubled its offering price on its first day this week.

Intermedia Communications retained control of Digex, keeping 50 million Class B shares, each of which has 10 votes. The Class A shares sold to the public have one vote each.

Irv DeGraw, research director with WorldFinanceNet.com, an online financial newsletter that tracks technology stocks, said he sees Digex as a "serious player" in the Web services niche, but he expects "muted" interest in the offering because of the large number of shares being offered -- 10 million shares. The company also went public at the end of a crowded week for technology IPOs.

The Yankee Group, a technology consulting firm in Cambridge, Mass., estimates that the market for Web services will balloon to $14.4 billion in the next four years, up from $4.4 billion estimated at the end of this year.

Digex said in its prospectus for the offering, managed by Bear Stearns & Co. Inc., that it planned to use money raised to purchase telecommunications equipment for expansion and to finance operating losses.

It said in the offering that it was banking on companies increasingly outsourcing management of their Web sites and related services to fuel growth.

For the three months that ended March 31, Digex booked an $8.6 million net loss on revenue of $9.4 million.

For the year that ended Dec. 31, Digex reported a net loss of $16.6 million on revenue of $22.6 million.

Intermedia Communications, which is based in Tampa, Fla., and caters to business and government customers, also lost money last year -- $487 million on $712 million in revenue.

Founded in 1990, Digex previously had a brief life as a public company -- selling 4.5 million shares at $10.125 in October 1996. In July 1997, it was bought by Intermedia for $13 a share.

Digex has about 550 customers for its core business, Web site support and application services for businesses conducting transactions over the Internet.

Customers include Budget Rent-A-Car, J. Crew, Forbes, Universal Studios and Nike.

Analysts note that the company faces tough competition in the arena, including telecommunications titans AT&T Corp. and MCI WorldCom Inc., and from upstarts AboveNet Communications, Level 3 Communications and Globix. There are no substantial barriers to even more competitors moving into the business.

Pub Date: 7/31/99

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