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Saturday, November 11, 1995 < Prev Next >

Visio Stock Soars; Sudden Success Perplexes Some

The seething demand for new stocks slammed into the Puget Sound region yesterday with an amazing reception for Visio Corp. shares.

In what is believed to be the biggest first-day growth for a stock in this area, shares in Visio, a Seattle-based software company, shot up $10 apiece, or 63 percent, to $26 from their original price of $16.

Other better-known public offerings of the past 10 years could not match Visio's. Shares of Microsoft, the Redmond-based software goliath, rose 32 percent the first day they were traded in 1986. Redhook Ale Brewery, a recent Seattle-based issue, jumped 59 percent in its August debut. Seattle coffee king Starbucks vaulted 26 percent in its first trading in 1992.

But to some, the sudden success is nothing to cheer about.

"The market is overdone," IPO Financial Networks President David Menlow told Bloomberg Business News. "The rise is driven by the increase in technology stocks, but I am at a loss as to how anyone could value these companies like this."

Visio is not at fault, said Leslie Dietz, director of finance.

"We have no control over the stock price," Dietz said. "We're interested in having a stock price the market can support over the long term."

The shares traded for less than 75 minutes yesterday, at the end of the market's 6 1/2-hour session. Normally, trading in a new issue begins within an hour or two.

The long delay before trading, said Dietz, Visio's director of

finance, was the decision of the brokerage house that brought the shares public.

Dietz said Alex. Brown & Sons, a Baltimore brokerage, may have been influenced by two issues: the large effort to sort out potential buyers and sellers of the new stock and to let other new issues of the day reach the market first. Volume in the brief trading period totaled 2.8 million shares, more than the 2.47 million sold and 22 percent of the 12.9 million outstanding. Visio insiders control about 81 percent of the shares.

At $26 a share, Visio's market value is $335 million. But from the stock sale Visio receives only the proceeds from the 2.1 million shares it offered, minus expenses. (About 370,000 shares were sold by existing investors, not the company.) So Visio's take was $31 million, which it said it plans to use for general corporate purposes.

Visio is just 5 years old, the dream of three refugees from Aldus, a maker of desktop-publishing software. The three are: Jeremy Jaech, chairman, president and chief executive; Ted Johnson, vice president of product development; and, Dave Walter, in charge of advanced development.

The company, with 150 employees, makes software for drawing and diagramming electronically, controlling better than half the market share. It has a lengthy relationship with Microsoft that includes the presence of Scott Oki, a former Microsoft executive, as an early investor and current member of the board of directors.

Sales for the fiscal year ended Sept. 30 were $34.2 million, up 66 percent from the year earlier's $20.6 million. The profit of $2.34 million, or 20 cents a share, compared with a $152,000 loss a year earlier.

A popular investment tool for comparing stock values is the price-earnings ratio. If a $10-a-share stock has an annual profit of $1 a share, the P/E is 10. The market average is about 17, with many technology stocks trading double to triple that. Microsoft's P/E is 37. Micron Technology is 16.

Visio's P/E ($26 divided by 20 cents) is 130, suggesting that the stock is expensive or that investors believe earnings will grow substantially. Edmark, a software a company about two-third's Visio's size and one of the year's hottest stocks, up 297 percent, has a P/E of 109.

The Seattle Times

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