Buy.com Posts Strong Sales as IPO Nears
Reflecting a breakthrough year for e-commerce, Internet retailer Buy.com Inc. blasted into the big leagues with fourth-quarter revenue of $200.6 million, a more than threefold increase that is likely to spur more interest in its initial stock sale.
Revenue growth for the company, which sells everything from computer hardware to books and videos, outpaced holiday Internet sales overall, which doubled to about $7 billion. By comparison, revenue at top seller Amazon.com Inc. more than doubled to $650 million for the quarter.
“The performance is very impressive,” said Barry Parr, director of consumer e-commerce research at International Data Corp. in Mountain View, Calif. “It’s 3% of the total market, and it definitely makes them a significant player.”
The Aliso Viejo company (ticker symbol: BUYX), which had $61.5 million in sales for the last three months of 1998, is the fourth-largest Internet retailer by revenue and the largest that is still privately held.
Buy.com is expected to go public this week with a much-anticipated initial public offering in which it could raise as much as $168 million. The quarter’s sales surge could be enough to make Wall Street overlook the company’s continued lack of profitability and gobble up the 14 million shares scheduled to be sold at $10 to $12 apiece through lead underwriter Merrill Lynch.
Buy.com lost more than $80 million for the first nine months of last year and it incurred $202 million in sales costs in the fourth quarter--$2 million more than it recorded in revenue, according to a filing with the Securities and Exchange Commission.
Company executives said they could not comment on the sales figures because they are in the so-called quiet period that precedes a public offering.
Buy.com, founded in 1997, made its name by selling products at cost or at a loss, with the idea that the discounts would create customer traffic and that advertising it sold for its Web site would provide the profit.
The philosophy has won the company much exposure. Buy.com was ranked the nation’s ninth-most-popular Web shopping site for December, said Lisa Strand, an analyst at NetRatings Inc.
But its popularity hasn’t translated into profits.
Though company leaders have tweaked their sales strategy in recent months, using loss leaders to draw in customers and then steer them to higher-profit-margin items, the SEC document acknowledges that Buy.com expects to incur losses “for the foreseeable future.”
That may give pause to some investors. After giddily embracing new “dot-coms,” Wall Street recently has cooled to companies whose business plans call for them to remain in the red indefinitely, analysts said.
“One thing that really bothers me about the company is that they have negative gross margins,” said Steve Lacey, managing editor of the IPO Reporter. “It’s not unheard of to go public based on that, but it’s not something that the market is after.”
