Buy.com Sees Its Gains From Market Debut Mostly Erased
Shares of Internet retailer Buy.com Inc., which had a surprisingly strong debut last week, have given back in the last two trading sessions most of the gains made when the company went public.
After a 19% drop Friday, the Aliso Viejo company’s stock fell 21% Monday, or $4.44 a share, to close at $16.94. The shares had traded as high as $35 last Tuesday, its first day on Nasdaq.
Company executives are in the so-called quiet period that follows an offering and would not comment on the stock’s movement.
Analysts, many of whom underestimated the company’s opening-day appeal, said they were not surprised by the drop-off. Companies often struggle to sustain their momentum as the spotlight moves on to the next new issue, they said.
Buy.com’s offering “was a much-anticipated IPO and the first major e-tailer this year, so people were hungry,” said Tom Taulli, an analyst with Internet.com. “Now that it’s gone up, a lot of them are thinking, ‘I might as well take my profits and get out.’ ”
The dip would become worrisome if Buy.com’s shares fall below the original $13 price set by underwriters a week ago, he said.
“Psychologically, that’s a bad thing,” he said. “It indicates negative sentiment.”
Buy.com’s recent performance may reflect investors’ larger concerns with e-tailers, most of whom continue to rack up losses even as they watch their sales grow, analysts said.
Shares of top-selling Amazon.com and EToys suffered setbacks in recent months after their income statements revealed oceans of red ink. Web bookseller Barnesandnoble and Webvan Group Inc., an online grocer, continue losing ground. The market yawned Friday at Pets.com Inc.’s initial offering, leaving the San Francisco online pet store’s shares unchanged.
Buy.com, the fourth-largest e-tailer by revenue, seems to fit the pattern. It lost $130 million last year, despite revenue of almost $600 million.
The company’s high profile and soaring sales fueled a solid first-day pop for its stock but could not erase the negatives, analysts said.
“If it had been red hot or white hot, it would have tripled,” said Silicon Valley investor Gail Bronson, an analyst with IPO Monitor in Calabasas. “People are looking for profits as well as revenue.”
Buy.com, founded in 1997, first made a splash by selling computer hardware, software, books, music and consumer electronics at cost or even at a loss.
But the company’s plan to generate profits by selling ads on its Web site did not pan out, leaving some analysts wondering if it could ever become profitable. The company has changed its strategy somewhat in the last six months, using loss leaders to steer customers to high-margin items, but it still loses money on each sale.
Hackers brought down Buy.com’s Web site for more than three hours the day the company went public, but analysts discounted the possibility that the temporary interruption had influenced its stock price. Hackers also disrupted several other popular sites, including Yahoo, EBay and ETrade.
