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One more Internet bubble: MP3.com

The July 28 IPO by the music portal, MP3.com (MPPP-O), was predictably shocking. The Web site, which distributes digital music files, more than tripled in price during the day's trading.

Though closing down almost 37 points from it's midday high of US$105, it still had a remarkable value of US$63.31 per share. That translates to an increase of 126.12 per cent over its initial recommendation price of US$28 (which itself had been pushed by almost US$20).

With that price, MP3.com's market capitalization is US$3.96 billion, over US$850 million more than B.F. Goodrich (GR-N), a company which is, literally, on solid ground.

MP3.com's core assets are downloadable digital music files official called Motion Pictures Experts Group 1, Audio Layer-3. MP3, as the format is known as, can record songs with CD-quality sound, but are small enough to be distributed across the Internet.

The format has forced the Recording Industry Association of America to create its own digital music format in an effort to prevent pirates from illegally recording and distributing music. It's also a move to ensure the industry will not be left out of any future revenues this new medium may produce.

That MP3.com more than doubled was no real surprise:

But like the majority of Internet stocks, the music site's economic outlook is shakey. (It doesn't help that the site is advertising supported—read: not making any real profit.) In fact, it's losses were almost three times its revenues during the March quarter ($1.5 million to $665,785).

While it does make some revenue by selling CDs of the artists it showcases on its site, it profitability will be a long time coming.

Some analysts speculate investors may not be aware that the MP3 is an open standard—anyone with the right tools can distribute the music files. In fact, AOL recently spent billions to acquire a company that does just that.

Whatever drove the price up, MP3.com's stock will surely continue "dot com" stocks' post-IPO ritual by dropping in value. Don't be surprised if the dropoff happens within the next few days.

But before the valuation comes down to a more reasonable level, expect MP3.com to building up its own war chest to battle the recording industry and secure it's position as the Yahoo of MP3s.