NASDAQ Stock Market delistings have tripled this year as once-hot Internet and telecommunication companies succumb to falling stock prices and the slowing economy.
Through the end of April, 147 companies have been removed from NASDAQ trading, up from 46 in the same period last year. For all of 2000, 240 companies were cut from the exchange.
Internet service provider PSINet Inc, Drkoop.com Inc and the Globe.com Inc were removed last month after their stock prices fell to less than US$1, the threshold for delisting. They join bankrupt online retailers EToys Inc and Pets.com Inc, which fell as the investor speculation that pushed the NASDAQ Composite Index past 5,000 points last year fizzled.
"It's the IPO aftermath," said Michael Balkin, co-manager of the William Blair Small Cap Growth Fund. "It happens almost every time. You have to pay the price at the other end."
There have been 37 initial offerings this year, down from 439 in 2000 and 561 in 1999. Currently, 122 of them are trading below US$1, not including the delisted companies, according to Commscan LLC, which tracks IPOs.
The economy cooled earlier this year, and as companies' sales slowed or fell, profits declined and thousands of workers were fired. Stocks fell further, nudging many struggling companies off the Nasdaq, experts said.
"The market is down 60 percent from its high, and stock prices are generally lower as a result," said David Donohoe, NASDAQ's chief counsel for listing qualifications hearings. "More companies are having problems maintaining compliance with our rules in a more difficult market like this." Some companies are being delisted after going public at a time when investors were buying anything dotcom. Many of these companies were losing money and hoped to be bought out before failing. Pets.com, for example, went public March 29, 2000, and was delisted 14 months later. It now is in liquidation.
"Delisting is just the normal course of correcting all the excess," said Jim Chen, portfolio manager at Roger Engemann & Associates Inc, who had invested US$3 million in the March 2000 IPO of personal computer seller EMachines Inc, which was delisted Thursday. "Many of them didn't have much of a business. What they needed was several more rounds of funding to adjust their business model."
NASDAQ warns companies that they may face delisting if their shares trade for less than US$1 for 30 days. With some companies, the threshold is US$5.
If the price is less than US$1 for 90 days after the warning, NASDAQ will delist, although companies can challenge the removal in administrative hearings. There are also market value and asset requirements that, if not met, will result in a stock's delisting.
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