In its first day of trading on the Nasdaq, music portal ArtistDirect closed below its initial public offering price in a dip that surprised analysts who had predicted the company would score big on Wall Street.
Encino-based ArtistDirect opened trading at $12 and closed at $9.41 — a drop of more than 21%. ArtistDirect is a network of Web sites, including divisions for music news, fan clubs, e-commerce and digital downloads.
Led by former William Morris agents Marc Geiger and Don Muller, company also operates the ArtistDirect talent agency and a record label, Kneeling Elephant Records.
Execs with the company declined to comment, saying that attorneys have extended the company’s quiet period, as mandated by the Securities & Exchange Commission, by an additional 25 days.
Analysts said the drop in ArtistDirect’s stock price could be attributed to investors wary of putting their money into a company in the already crowded online music arena.
“It’s a softer area of the Internet,” said Gail Bronson, a senior analyst with Los Angeles-based IPO Monitor. “It’s not business to business or infrastructure, two areas that are really popular. There’s less of a knee-jerk reaction to invest in a general IPO.”
But Aram Sinnerich, an analyst with Jupiter Communications in New York, said the stock should take off once the investment community gets more background information on ArtistDirect.
‘No off-line equivalent’
“I think the investment they’ve received from the major record labels is a validation of their business model,” Sinnerich said. “We’re very bullish on it, and it’s just a matter of educating the investment community. There’s no off-line equivalent of ArtistDirect, whereas with online retail stores like Amazon you can point to a Sears and show people what it’s all about.”
ArtistDirect hopes to raise $55 million in the offering, which is being underwritten by Morgan Stanley Dean Witter; Bear, Stearns and Deutsche Banc Alex. Brown. According to the IPO prospectus, $30 million will go toward advertising and promotion of bands on the site, $10 million for Web site development and the remainder for general corporate purposes.