Webvan Revenue Warning Renews Survival Concerns
Internet grocer Webvan Group Inc.’s warning Tuesday of disappointing fourth-quarter revenue and widening losses renewed concern about the company’s future.
Although Webvan managed to beat analysts’ profit expectations for the quarter, revenue fell dramatically as a cutback in marketing and manpower caused the number of new orders to fall.
Webvan said it will post a loss of 23 cents a share in its fourth quarter, less than the 26 cents predicted by analysts polled by First Call. However, its revenue will come in at $84 million in the quarter, about 20% lower than the company had predicted.
Webvan officials contend the revenue shortfall is just a temporary glitch as they shift their strategy from increasing market share to conserving cash and focusing on their free-spending loyal customers.
Analysts, however, say the shortfall signals a declining consumer appetite for online food delivery.
“It clearly points to a problem on the demand side,” said Mark Rowen, a Prudential Securities analyst who follows the stock. “Demand is significantly lower than they projected and they are nowhere close to filling up their distribution centers.”
Given the large amount of money the company spent in its fourth quarter--nearly $100 million on operations alone--analysts say it will probably run out of money in the next two quarters.
Webvan stock closed unchanged at 47 cents a share on Nasdaq on Tuesday.
With its stock price down 97% since it was sold to the public in November 1999, the chances of raising money on the public market are nil. In fact, the company expects to receive a notice of delisting from Nasdaq sometime this week. Its only salvation, analysts say, is finding additional private investment.
Company officials attribute part of the decline in revenue to a shortage of drivers in key markets, which prevented them from fully capitalizing on demand at peak hours.
Demand in Southern California, where it still operates under the HomeGrocer name, was sluggish enough to force the conversion of one of its huge distribution hubs in Irvine into a small “spoke” or grocery drop-off point for drivers. The move to fill those orders from its Fullerton warehouse eliminated 115 jobs in the fourth quarter.
The company insists its distribution system is viable, even though none of its centers has broken even.
Webvan officials hope to turn things around by focusing on its most loyal customers, tailoring specials, free samples and incentive programs and giving them preferential delivery times.
The average order size rose 10% from the previous quarter to $112.
Still, analysts are skeptical the company can incorporate enough high-ticket items to make the model work.
Some, such as Evie Black Dykema of Forrester Research, suggest that perhaps bricks-and-mortar supermarkets are better able to meet the demands of time-strapped consumers with order and pick-up services.
There are a handful of online grocers who have prospered through affiliations with such stores as Massachusetts-based HomeRuns.com, which is owned by the Hannaford Bros. supermarket chain.
Pure Internet grocers such as Streamline.com and ShopLink.com have already gone under, and more Internet delivery companies appear to be in a precarious position with the economy slowing.
Kozmo.com Inc., a delivery service for snacks, videos and other items, said Tuesday that it will shut its San Diego and Houston operations this week because demand was sluggish and the amount spent less than expected. The company still delivers in Los Angeles.
