O.C.’s Buy.com Sees Stock Nearly Double in IPO
Buy.com Inc.’s stock almost doubled Tuesday in the online superstore’s debut as a publicly traded company, receiving a surprising embrace from investors who recently have driven Internet retailing stocks downward.
Buy.com’s shares, priced Monday at $13 each, surged to more than $35 early in heavy trading before drifting lower to close at about $25.
Executives at the Aliso Viejo online retailer crowed about investor response, even shrugging off a suspected computer attack that brought down the company’s Web site for three hours. Company founder Scott A. Blum, who owns about half the company, joined the growing ranks of Orange County billionaires.
Analysts struggled to interpret the signal embedded in the stock’s first-day jump.
Some viewed it as proof that Buy.com has successfully established its identity, emerging above the cacophony of Web merchants as a bona fide challenger to industry leader Amazon.com.
“What I like about the company is they have a good brand,” said researcher Barry Parr at International Data Corp. The stock’s initial burst shows that investors, like shoppers, recognize Buy.com among the crowd of online discounters, he said.
Other analysts, however, remained unsold both on Buy.com’s business strategy and on Internet retailers in general.
The once-potent buzz on Buy.com’s stock sale seemed to taper as new stock issued by 1-800-Flowers.com, Barnesandnoble.com and Value America sputtered or nose-dived. Buy.com’s pricing, in which shares were set just $1 above the expected range, suggested to some analysts that e-tailing had lost Wall Street’s favor to other sectors, from business-to-business e-commerce to biotechnology.
Even after Tuesday’s gains, skeptics said Buy.com had merely hitched a ride on a hot market for initial offerings and a blistering day for Nasdaq, which grew 2.4% Tuesday to set a record. Several analysts predicted Buy.com would soon relinquish its initial gains.
“It looks good for now, but comparatively speaking, I would not consider it a roaring IPO,” said Tom Taulli, an analyst with Westport, Conn., data firm Internet.com. “As long as the e-tailing sector is ailing, I wouldn’t be surprised to see the price come down.”
Despite the doubters, about the only thing that marred opening day for Buy.com executives was a “denial of service” attack that crippled the company’s Web site from about 11 a.m. to 2 p.m.
“Here you’ve got the biggest day possible for bringing in new customers, and I’m panicking,” Chief Executive Gregory Hawkins said, laughing off the temporary setback. The site was running normally late Tuesday.
By selling 14 million shares, Buy.com raised $182 million to repay debt, upgrade technology and expand into foreign markets.
Buy.com, the fourth-largest online retailer, first grabbed attention by promising the “Lowest Prices on Earth” and selling computer hardware, software, books, music and consumer electronics at cost or even at a loss.
The approach produced explosive sales growth. The company piled up $598.6 million in revenue last year, more than triple its 1998 total. But like many e-tailers, Buy.com lost money on each sale, and revenue from ads on its Web site failed to offset costs. The company posted a net loss of $130.2 million last year.
Hawkins acknowledged that Buy.com’s pricing plan had been “over-aggressive.” But he said the company has shifted strategies in the last six months, using smaller, more targeted discounts to draw in customers, then steer them to higher-margin items.
Instead of offering every digital video disc, or DVD, for $14.99, for example, the company sells hot titles like “The Matrix” at that price, but charges $1 or $2 more for other items, he said.
“We’ve been unfairly bashed,” Hawkins said. “We’re not giving up our low-price-leader position. All you really saw us do is become more rational.”
The sale also added to the gush of Internet wealth hitting Orange County.
Founder Blum resigned as Buy.com’s chief executive early last year and no longer has an active management role, but his stake in the company--now 48%, or 62.1 million shares--was worth nearly $1.6 billion by Tuesday evening.
Blum joins a list that includes Broadcom Corp. co-founders Henry T. Nicholas III and Henry Samueli, whose personal stakes in the Irvine chip company are worth more than $6 billion each, and Vincent Smith, chief executive of Quest Software Inc. in Irvine, whose stake in the database software maker is worth more than $1.6 billion.
Other Buy.com winners include investor Softbank America Inc., which holds a $962-million stake, or 38.3 million shares, and company director David Ingram, whose 5.3 million shares are now worth $132 million.
Hawkins watched his 4.5 million shares reach a value of $113 million.
“I’m a happy camper,” he said. “It’s certainly nice to see how the market’s responding.”
Times staff writer P.J. Huffstutter contributed to this report.
