Wall Street welcomes the cyber contender

Wired, the fashionable but loss-making magazine, is the latest in a series of Internet-related stock offerings to cash in on Wall Street's cyber frenzy, which in the past year has seen stock in other loss-makers such as Yahoo! reach astronomic levels.

Goldman Sachs, which will be handling the initial offering, announced last week that Wired Ventures, which publishes the magazine, would be offering investors 6.3 million shares - or roughly 17 per cent - of the company at $12 (pounds 7.80) a share.

The sale should raise $76m and result in a market capitalisation for the company of around $565m. This is a figure that has left many analysts questioning the wisdom of what Goldman Sachs calls "hi-tech investment opportunities".

Wired is a monthly magazine devoted to the Internet and cutting-edge computer technology with a circulation of 325,000. Spin-offs include an Internet edition, HotWired, and a start-up book publisher, HardWired. It has also announced plans to introduce HotBod, a "web browser" to help Internet users navigate around cyberspace.

The magazine, which routinely features media celebrities such as Microsoft's Bill Gates, TCI's John Malone and Bell Atlantic's Ray Smith in irreverent poses on its cover, is credited with making the nerdish world of computer technology hip. It was founded in San Francisco in 1993, and was the first magazine to portray the culture of cyberspace. It has managed to convince Americans that they need to buy the magazine in order to keep up with the digital world.

The good publishing stamp of approval was bestowed in 1994 when SI Newhouse, owner of Advance publications, which includes the Conde Nast magazine titles and Random House publishers, acquired a reported 15 per cent stake in Wired Ventures for $3.5m.

If the offer is successful, his investment will be worth some $67m.

The Wired offering, which is expected in late July, will leave 37.5 million shares outstanding and make paper millionaires out of some of its editors and journalists.

Founding editor Louis Rossetto's 6 million shares will be valued at $71.3m and Nicholas Negroponte, computer visionary and director of the Media Lab at the Massachussetts Institute of Technology, will enjoy a stake valued at $29m.

Alhough Wired is the most recognisable publication devoted to computer innovations - "smart media for smart people" - many analysts judge the $12 share price (at nearly 18 times the company's 1995 revenue) as speculation reminiscent of the great tulip craze of 18th-century Holland. "A magazine in the US typically sells for within one to two times its gross revenue but Wired is being priced at 171/2 times that," says New York-based media consultant, Martin Walker. "There is no magazine in the world with a 325,000 circulation that's worth that kind of money.

"They're suffering from Silicon Valley fever."

According to its latest report to the Securities and Exchange Commission, Wired Ventures lost $3.4m on sales of $7.6m in the first quarter of the year. Last year it lost $6.5m on sales of $25m and $3.5m on revenue of $9.2m in 1994.

HotWired has yet to show any revenue at all. As an Internet magazine, it cannot charge a subscription so has to rely on advertising revenue. But, Mr Walker says: "Advertisers are unable to measure the impact of their advertising."

Nor has Wired's venture into Europe been successful. Its joint venture with the Guardian broke up acrimoniously last year, and the European edition is struggling to find a niche.

This is not the first time Goldman Sachs has underwritten a company that carries the magic word "Internet" but lacks a proven means of revenue. In April, it underwrote Yahoo! - the Internet company whose software searches the net for specified information. At an opening price of $13, shares instantly soared to $43 (valuing the company at an astonishing $1.1bn) before dropping $33 at the end of the first day's trading. Last week Yahoo! shares were at $28 - still 528 times the company's revenue.

Whether Goldman Sachs is lending its name to an offering of virtual junk or, as the Wired Ventures offering statement says, "a new kind of global, diversified media company engaged in creating a competitive, branded content with attitude for print, on-line and television" is for investors to judge.

"Outside of a lot of excitement Wired hasn't proven itself in any way," says Mr Walker. "I can't say that [the offer] is crazy or wrong because the market decides. But whatever it is that they smoke in California, they don't smoke it here."

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