FTD.com Hoped to Flower on Web, but Prospects Are Wilting

If any product ought to be easy to sell on the Web, it’s flowers. They are easy to display on computers, they don’t have to be tried on for size, and they usually need to be delivered anyway.

Yet FTD.com, one of the most recognizable names in the floral business, is having a bloomin’ time convincing Wall Street there is money to be made peddling peonies and hydrangeas online. Investors have pruned 75% off the Downers Grove, Ill.-based company’s market value since it went public last fall at $8 a share. On Friday, the stock closed at an all-time low of $2, down 53 cents.

FTD.com has lost $12.9 million in the last three years, and although it raised $36 million when it went public last fall, the company’s cash cushion may be depleted around September unless it gets an infusion from investors.

The company also faces competition from three other online firms, including the well-known 1-800-Flowers.com. And now with the stock price so low, Wall Street sees FTD.com as takeover bait for a company like online superstore Amazon.com or Web portal Yahoo.

“I could see somebody buying these guys, particularly where their stock price is,” said Stephen Lacey, managing editor of IPO Reporter in New York.

After the recent meltdown of “dot-com” stocks such as Drkoop.com, CDNow and Peapod, “there’s just been a lack of faith from the market for pure Internet retailers,” Lacey said. (On Friday, Dutch supermarket group Royal Ahold agreed to bail out struggling Internet grocer Peapod by buying 51% of the company for $73 million.)

For FTD.com Chief Executive Michael Soenen, 30, his company’s decline merely demonstrates that consumer-oriented e-commerce sites as a whole are out of favor.

Now, Soenen said, investors are examining business-to-consumer e-tailing stocks “with a fine-toothed comb to figure out which ones will be there in the long term and which ones won’t. I think we’re doing really well when we’re put under that microscope.”

Its finances are certainly getting studied in detail. Based on FTD.com’s most recent quarterly income statement, the company is spending $6.15 million per month to stay in business but is taking in only $2.2 million in gross revenue. That leaves the company with a monthly deficit of $3.9 million. At that rate, FTD.com will spend through its cushion--reported at $35.7 million in cash and other current assets as of Dec. 31--in about five more months.

Soenen refused to discuss FTD.com’s burn rate, but its competitors are in a similar bind:

* 1-800-Flowers is running a monthly deficit of about $22.4 million. At that rate, the Westbury, N.Y., firm can hold out for an additional 8.4 months.

* Gerald Stevens Inc. of Ft. Lauderdale, Fla., is losing $17.7 million a month, with enough reserves to last for less than two more months.

* PC Flowers & Gifts of Stamford, Conn., planned to raise $46 million in an initial public offering but withdrew in October. In its prospectus, the company revealed that, as of May, it was losing $326,000 each month and had 13 months worth of cash and other assets on hand.

Like many observers, Soenen predicts the number of online florists will shrink dramatically. By 2004--two years after he expects FTD.com to become profitable--he figures the only remaining players will be FTD.com and 1-800-Flowers, and his firm will have at least one-third of the market.

At that point, “we should have a billion-dollar company on our hands,” he said. “We’ll have about a 15% operating margin, so that’s $150 million a year of operating margin. Take that number and use any valuation metric, and our stock is significantly undervalued.”

The genesis for FTD.com is Florists’ Transworld Delivery, a for-profit association of 20,000 florists that began selling flowers directly to consumers through a toll-free telephone service in 1993. The following year, FTD launched a retail Web site to sell floral arrangements and gifts such as candles and chocolates.

FTD’s traditional business--maintaining a network of florists and collecting a 7% transaction fee on orders fulfilled through that network--generates steady annual revenue that topped $213 million in its 1999 fiscal year. The firm, also based in Downers Grove, made an $853,000 profit last year, excluding extraordinary expenses.

The online business, on the other hand, has comparatively meager revenue. It also has a voracious appetite for marketing dollars and consequently loses millions of dollars a year. So FTD combined its Internet and phone operations and turned them into a separate company called FTD.com in May and filed papers to sell 10% of the company to the public.

The prospects for FTD.com looked promising. According to market researcher Forrester Research, $2.5 billion of flowers will be sold online in 2004, up nearly sevenfold from $354 million in 1999. Online sales of specialty gifts are forecast to increase more than eightfold, from $167 million last year to almost $1.4 billion in 2004.

But other signs were more ominous. In early August, 1-800-Flowers.com went public at $21 a share and promptly sank 13% to $18.19 in its first day of Nasdaq trading.

When FTD.com made its original filing with the Securities and Exchange Commission in May, it expected to raise as much as $90 million in its IPO. But by the time the company went public in late September, it was able to raise a mere $36 million.

FTD.com shares gained nearly 8% in their first day of Nasdaq trading to close at $8.63. But that proved to be an all-time high.

While FTD.com’s stock price sank, its losses grew. In the last three months of 1999, FTD.com lost $18.5 million, way up from the $4.6-million loss in the year-earlier quarter, while the company’s total quarterly revenue grew 86% to $23.6 million. After delivery costs of $17 million, the company’s gross revenue was $6.6 million.

Meanwhile, FTD.com boosted its marketing budget more than fourfold, from $3.1 million in the last three months of 1998 to a whopping $14.3 million in the last three months of 1999. Soenen expects his marketing budget to continue to grow.

He also expects FTD.com’s big marketing investments to help him keep growing and, he hopes, to get closer to profitability.

He also hopes to turn occasional FTD.com customers into repeat purchasers with services such as e-mail reminders about family members’ birthdays, he said.

Marketing is FTD.com’s biggest expense. Unlike other e-tailers that are building distribution systems from scratch, FTD.com is tapping into FTD’s 90-year-old distribution network.

But with its stock price so low, Soenen acknowledges, it will be virtually impossible for FTD.com to raise money by selling more stock to the public. However, the company has other options, he said.

“We can borrow money from our parent company, or we can get another round of financing from our existing investors,” he said.

A spokeswoman for FTD said the company did not want to comment on FTD.com’s business or its willingness to provide a cash infusion.

*

Karen Kaplan can be reached at karen.kaplan@latimes.com.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

The Bloom Is Off?

FTD.com is trying to turn the Web into the world’s most convenient florist. But to do so it has spent tens of millions of dollars on marketing, resulting in soaring losses and a plummeting stock price.

*

Friday: $2.00

*

Source: Bloomberg News

The Bloom Is Off?, Los Angeles Times