Struggling EToys to Get $100-Million Infusion
EToys Inc., the struggling Santa Monica-based Internet toy seller whose stock has lost 92% of its value since October, said Tuesday that it will get a $100-million cash infusion from private investors that will keep it in business until late next year.
In March, EToys said it had $140 million in cash, or just enough money to bring it through this year’s crucial holiday shopping season.
With the new funds and declining costs per sale, Chief Financial Officer Steve Schoch said EToys’ cash will probably hold out through fall 2001.
The company has lost more than $220 million since its founding three years ago, but EToys executives say the firm hopes to reach profitability by 2002.
“While the stock price is certainly low, the fact that they have investors willing to put new money to work in the company is encouraging,” said Sean McGowan, a toy industry analyst with Gerard Klauer Mattison & Co. in New York.
The newest investment comes from three groups, led by Promethean Asset Management in New York, which put $25 million into EToys. Angelo, Gordon & Co. invested $45 million, and Citadel Investment Group added $30 million.
EToys raised the funds through the sale of preferred stock and warrants. At today’s stock valuation, the investment is worth about 13% of EToys.
Schoch said EToys will probably continue to look for new investors and strategic partners for deals such as cross-promotion advertising agreements.
“We’re not going to just sort of drop the gloves and wait until we have $10 left in the bank to finish the job,” Schoch said. “But if we’re going to break even or better in 2002, and this is going to carry us to late 2001, we’ve made a pretty good start.”
Shares in EToys fell 16 cents Tuesday to close at $6.25 in Nasdaq trading. EToys stock debuted a year ago at $20 a share and hit a high of $86 in October.
EToys has suffered not just from the recent nose dive of most Internet and technology stocks, but from the increasingly competitive online toy business. EToys competes with Wal-Mart Stores Inc., the top American toy seller, as well as other giants such as Toys R Us Inc. and Target Stores Inc.
Recently the competition has forced several online-only firms out of business. Last month, ToyTime.com Inc., Walt Disney Co.’s Toysmart.com and Viacom Inc.’s RedRocket.com shuttered their sites.
On Tuesday, Consolidated Stores Corp.’s KBKids.com expressed its market jitters by withdrawing its planned $210-million initial public offering.
EToys’ Schoch said that securing new funding is just the first step in proving the company’s value to Wall Street.
“The good news is that we can access capital in a very difficult time like this because our performance and basic business metrics are very strong,” Schoch said. “As much as we’d like to think that having capital to do the job should [matter], we’re not under any illusions that it isn’t still about performance.”
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No Fun
EToys’ shares, which traded as high as $86 in fall, have tumbled this year amid concern about the company’s financial health. Monthly closes and latest on Nasdaq:
Tuesday:
$6.25,
down
16 cents
Source: Bloomberg News
