NETZERO'S IPO SEEN AS BIG PLUS : SERVICE PROVIDER TOPS 1.7 MILLION ACCOUNTS.

Byline: Jason Z. Cohen Staff Writer

Set to make its public debut this week, the area's newest Internet debutante, NetZero Corp., is among a group of Internet stocks scheduled to go public after a summertime lull in activity.

NetZero has distinguished itself from the cyber-this, e-that, so-and-so-dot-com crowd by coming up with a unique and effective business model, said Internet stock analyst Tom Taulli, a columnist with Internet.com.

Taulli said he expects NetZero to do well in its initial offering, building to a market capitalization of as much as $3 billion the first day. That would mean a price appreciation of nearly $20 over its expected $9 to $11 IPO price.

Although the company is issuing 10 million shares to the public, the total number of shares outstanding after the public offering will be almost 103 million, with the company and its executives holding the vast majority.

NetZero is on the list of companies scheduled to go public this week, but precisely which day is unknown. The IPO is being managed by Goldman Sachs. The stock is expected to trade on the Nasdaq National Market under the ticker symbol NZRO.

The company, which has more than 1.7 million subscribers, offers free Internet service to customers who agree to the constant presence of advertising on their computer screens.

NetZero is the latest spawn from idealab, the Pasadena-based incubator that has produced eToys, GoTo.com and the online outlet for Ticketmaster, among others. Taulli said idealab has a solid reputation for producing strong businesses and pointed out it has $360 million in capital to back up its ventures.

``It looks like NetZero will follow as another success for idealab,'' said Taulli, who praised the concept of free Internet service, ``which is where I think it's going anyway. ISP services are a commodity, and commodities usually go down in price over time.''

NetZero has proved its ability to attract customers, but the key question to its survival is whether the company can retain them.

NetZero Chief Executive Officer Ronald Burr has said in the past that the company's break-even point is 1 million customers. The company is declining comment in the period leading up to the IPO.

``They'll probably be able to continue to grow,'' said Taulli. ``I think it'll be a very successful IPO.''

Gail Bronson, senior analyst for Calabasas-based IPO Watch, was more tentative in her assessment.

While she believes NetZero's IPO will raise the desired amount of capital, Bronson said the company is likely to struggle with finding the right amount of advertising.

Bronson said she wonders at what point NetZero's customers will tire of the company's ubiquitous advertising banners.

``It simply means they're going to have to very carefully manage how advertising is presented and to make sure it continues to be considered benign,'' Bronson said. ``On the whole, most people don't want to have to put up with advertising. It's a question of what's the bigger burden: Paying for service or looking at advertisements?''

The company's most recent registration statement, filed Wednesday with the U.S. Securities and Exchange Commission, calls for the sale of 10 million shares at a price between $9 and $11 per share.

The upcoming round of Nasdaq National Market initial stock offerings this week includes a handful of Internet firms, including NetZero.

With the disappointing results of the initial offering for 1-800-FLOWERS' online unit and the corresponding drought of Internet IPOs in August and early September, some investors are looking to this week's crop as indicators of the future for other Internet IPOs.

That's a mistake, say experts, who say each company can be judged only on the strength of the company itself, not the industry it is born into.

Business plan, past performance, major investors and management are a better measure than whether the company's name ends in dot-com, Taulli said.

Assuming that Internet stocks as a sector will do well or poorly following the direction that this week's IPOs take is a mistake, he said.

``It will not necessarily be a gauge for Internet IPOs,'' Taulli said. ``There will continue to be a dichotomy between those companies that are very strong in comparison to some of the iffier companies that are out there. The IPO market will continue to be strong for strong companies.''

Bronson agreed.

``Each situation is an individual. Each case stands alone,'' Bronson said. ``There are a whole host of IPOs that are going to come out this fall. Some are noteworthy, and some are just part of the general swell of Internet frenzy.''

Depending on the market's general performance, Taulli predicts a favorable initial offering for NetZero.

``I'd not be surprised if it goes up 100 or 150 percent its first day.''

After the initial offering, the key to NetZero's performance is how the company uses its money.

``If they use it for a clever and engaging marketing campaign, I expect they'll continue to do well,'' Bronson said. ``They have to measure their needs in terms of building out a business that's overwhelmingly advertising driven.''