Buy.com’s 2nd Quarter Is a Plus and Minus
Internet superstore Buy.com Inc. posted hit-and-miss results Thursday, handily beating Wall Street’s profit expectations but also showing a disappointing drop-off in sales growth.
The Aliso Viejo firm generated 20% more red ink in this year’s second quarter, reporting a net loss of $33.6 million, up from $28.1 million a year ago.
Strangely enough, that was the good news. The company once synonymous with selling at or below cost is steadily upping its gross profit margins, a crucial step in satisfying investors fed up with money-losing e-commerce ventures, analysts said.
“That’s what will drive profitability in the long term,” said Genni Combes, an analyst at Chase H&Q.; “Their margins were negative last year and now they are positive.”
Excluding one-time charges, the per-share loss came in at 18 cents, 5 cents better than what analysts had predicted. A year ago, the company lost 29 cents a share when there were fewer shares outstanding.
But even as it added customers and product categories in recent months, Buy.com’s revenue growth has slowed. Sales increased 49.4% to $193.2 million--anticlimactic compared with the 92% upward blast the company generated in the year’s first three months and a 200% jump for all of 1999.
Chief Executive Greg Hawkins attributed the results to slumping computer sales, the summer season, shortages of certain items and a deliberate effort to prune unprofitable products and customers from Buy.com’s lineup.
Analysts, however, said Buy.com’s slower progress hints at a more profound shift in online retailing.
“We’re not seeing the hyper-growth we’ve seen before,” said Tom Taulli, an analyst with Internet.com, a Connecticut data firm. “The potential may be topping out.”
Industry leader Amazon.com said Thursday that its sales increased 84% to $578 million in the second quarter, but that showy number fell short of the company’s internal goal of 90% and Wall Street’s target of $600 million in revenue.
A growing cloud of doubt drove Amazon’s shares down 13% to their lowest level since December 1998. Several analysts downgraded the stock and expressed doubts to clients that it could ever reclaim the heights it reached early last year.
Buy.com’s stock continues to sag, hitting a new low Thursday before closing at $4.38, down 34 cents on the Nasdaq Market. The company’s shares have plummeted 66% since Buy.com went public in February. The company disclosed its quarterly results after the close of regular trading on U.S. markets.
“No matter what Buy.com reported, it wasn’t going to be good enough,” said Jonathan Gaw, research manager at IDC in Mountain View. “Everyone is looking at Amazon as the bellwether.”
With $140 million in the bank, Hawkins said, Buy.com was prepared to ride out the poisonous investment atmosphere for business-to-consumer e-commerce companies. In fact, it has begun to capitalize on the difficulties of other dot-coms, swooping in to acquire wireless device seller Telstreet.com and assets from failing online movie seller Reel.com.
Buy.com, he said, “is going to be a survivor.”
