Buy.com IPO Hits Market Today Amid Signals of Cooling Fervor
The once feverishly anticipated initial stock offering of Internet superstore Buy.com Inc. was priced Monday at $13 a share, a sliver above the predicted range and a sign of lukewarm confidence in the company’s performance.
With public trading set to begin today, Buy.com’s offering may be caught in powerful investment crosscurrents, analysts said. Most expect the Aliso Viejo company to enjoy a first-day gain on Nasdaq, but not the ecstatic doubling and tripling experienced by many e-tailers last year.
“We can’t get behind it with any firm conviction,” said David Menlow, president of data tracking firm IPOfinancial.com. Unlike last year’s runaway “dot-com” stocks, he noted, Buy.com’s offering price wasn’t revised much beyond the original range of $10 to $12 a share.
Buy.com, until today, was the largest privately held online retailer and is the fourth-largest overall. In pricing the stock, the company sold 14 million shares to underwriters, raising $182 million.
The company garnered instant buzz and skyrocketing sales by promising the “Lowest Prices on Earth” and selling computer hardware, software, books, music and consumer electronics at cost or even at a loss.
But Buy.com sports the kind of income statement all too familiar to those who follow Internet retailing stocks. The company piled up $598.6 million in revenue last year, but posted a net loss of $130.2 million.
Wall Street has pummeled even the most well-entrenched Internet retailers that follow this pattern. Amazon.com’s stock closed at $75 a share Monday, far from its 52-week high of $113. After encountering holiday-season service problems, EToys has dropped to $16.84 from a high of more than $77 a share in October. An index of the top 15 e-tailers shows that, collectively, the stocks have lost almost one-third of their value.
“Wall Street has kind of fallen out of love with the e-tailer market,” said Tom Taulli, an analyst with Internet.com. “It has become a very brutal market for their space, and now all the major brick-and-mortar retailers are getting in. It’s not the greatest time for Buy.com.”
Some analysts, however, say Buy.com’s sheer size and prestigious backers may help it buck the e-tailer-bashing trend, at least in the short term. Japanese investment giant Softbank Inc., whose other Internet holdings include stakes in Yahoo Inc. and E-Trade Group Inc., bought 31% of the company in September.
“You look at their portfolio, and it’s the cream of the crop,” said Ben Holmes, founder of IpoPros.com, a Boulder, Colo., firm that tracks new issues. He predicted Buy.com’s stock would rise about $3 in its initial day of trading. “My guess is that it’s good at least for the first day.”
Another factor that may help Buy.com’s cause is that initial public offerings in general remain blazingly hot, outperforming the market as a whole.
Buy.com’s stock sale is the first by an Internet retailer this year, which also may whet investors’ appetites, analysts said. Still, they expect that the hottest of more than 20 tech-related stocks to go public this week will be companies in the business-to-business e-commerce and biotechnology sectors.
Buy.com’s offering, which will trade under the ticker symbol BUYX, also constitutes a referendum of sorts on its bold, yet risky, business strategy, analysts said.
Founded in 1997, the company made its name by offering discounts to bring in customer traffic on the theory that the advertising it sold for its Web site would provide the profit. The profit, however, never materialized.
The company plans to use the money raised by the stock sale to pay off debt, upgrade technology, cover marketing expenses and expand through acquisitions or new partnerships, according to regulatory filings.
In recent months, Buy.com has moved away from deep across-the-board discounts, instead relying on loss leaders to lure consumers and then promote higher-margin items. But it continues to lose money on each sale.
“Simple math shows that this company may never be profitable the way it’s going,” Taulli said. “Investors are clearly moving away from stocks like this.”
