Buy.com Shares Nearly Double on 1st Trading Day
Buy.com Inc.’s stock almost doubled Tuesday in the online superstore’s debut as a publicly traded company, getting a surprisingly warm reception from Wall Street, which has been largely cool to Internet retailing stocks of late.
Buy.com’s shares (ticker symbol: BUYX), priced Monday at $13 each, surged past $35 early in heavy trading before drifting lower to close at $25.13 on Nasdaq.
Executives at the Aliso Viejo-based online retailer crowed about the investor response, and they shrugged off a computer attack that brought down the company’s Web site for several hours on Tuesday.
Company founder Scott A. Blum, who owns about half the company, joined the growing ranks of Orange County billionaires.
Analysts struggled to interpret what signal may be embedded in the stock’s first-day performance. Some viewed it as proof that Buy.com has successfully established an 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. in Mountain View, Calif. The stock’s initial burst shows that investors, like shoppers, recognize Buy.com as distinct among the crowd of online discounters, he said.
Other analysts remained unsold on Buy.com’s business strategy and on the future of Internet retailers in general.
The initial heated buzz surrounding Buy.com’s plans for a stock sale seemed to ebb as 1-800-Flowers.com, Barnesandnoble.com and Value America have seen their stocks sputter or nose-dive. Buy.com’s stock offering was priced Monday at just $1 above the expected range, which suggested to some analysts that e-tailing had permanently lost Wall Street’s favor to other sectors, from business-to-business e-commerce to biotechnology.
Skeptics said Tuesday that Buy.com benefited merely because it hitched a ride on a hot market for initial offerings and because it opened on a blistering day for the Nasdaq Stock Market. The Nasdaq index gained 2.5% on Tuesday to hit yet another record close. Several analysts predicted that Buy.com will 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 data firm Internet.com, based in Westport, Conn. “As long as the e-tailing sector is ailing, I wouldn’t be surprised to see the price come down.”
Doubters aside, about the only thing that marred opening day for Buy.com executives was the “denial of service” attack that crippled the company’s Web site from about 11 a.m. to 2 p.m. Pacific Time.
“Here you’ve got the biggest day possible for bringing in new customers, and I’m panicking,” Chief Executive Gregory Hawkins said Tuesday, laughing off the temporary setback. The site was operating normally by late afternoon Pacific Time on Tuesday.
In its sale of 14 million shares, Buy.com raised $182 million to repay debt, upgrade technology and expand into foreign markets.
Buy.com, founded in 1997, is the fourth-largest online retailer in terms of revenue. It 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 Buy.com, like many e-tailers, lost money on each sale, and revenue from advertising 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 Tuesday that the company has shifted strategies in the last six months, using smaller, more targeted discounts to draw in customers and then steer them to higher-margin items.
Instead of offering every digital videodisc, or DVD, for $14.99, for example, the company sells hot titles at that price but charges $1 or $2 more for other items, he said.
“We’ve been unfairly bashed,” Hawkins said about the company’s shift in strategy. “We’re not giving up our low-price-leader position. All you really saw us do is become more rational.”
The stock 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 he no longer has an active management role. But his stake--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 38.3 million shares, or a $962-million stake, and company director David Ingram, whose 5.3 million shares are worth $132 million.
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Times staff writer P.J. Huffstutter contributed to this report.
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An E-Tailing Sampler
Many Internet retailing stocks have staged impressive debuts, as Buy.com did, but not all have been able to keep investors buying. Some recent IPOs:
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Ticker IPO 1st-day 1st-day Tues. Company symbol price close % change close Priceline.com PCLN $16.00 $69.00 +331.3% $58.06 EToys ETYS 20.00 76.56 +282.8 16.50 EBay EBAY 6.00 15.79 +163.2 169.75 Value America VUSA 23.00 55.19 +140.0 6.00 Buy.com BUYX 13.00 25.13 +93.3 25.13 Autobytel.com ABTL 23.00 40.25 +75.0 13.00 CDnow.com CDNW 16.00 22.00 +37.5 10.69 Amazon.com AMZN 1.50 1.96 +30.6 83.13 Barnesandnoble.com BNBN 18.00 22.94 +27.4 11.13 Egghead.com EGGS 6.00 5.88 --2.0 12.81
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Note: All prices are split-adjusted.
Sources: Bloomberg News, Times research
