Peapod: Not Easy Being Green Dave Marino-Nachison (TMF Braden)
November 8, 1999
For most of 1999, investors have been behind the Peapod (Nasdaq: PPOD) story despite increasing losses and cash flow problems at the online grocer. The shares have generally risen over the first 10 months of this year. Things have gone sour over the last several trading sessions, however, on concerns about the company's cashflow and ability to fund its operations heading into 2000.
Today, Peapod moved to allay investor worries by announcing that it has $15 million in cash and marketable securities, which Peapod believes will be enough to fund its operating needs through next year's Q3. That wasn't enough to reverse the stock's recent fall, which Friday began chipping away at the company's $15 per share closing price of Thursday evening; the shares fell as low as $9 1/8 today.
Peapod said its statement was in response to rumors that it was out of cash -- but any such rumors could only have been caused by a statement in the company's most recent quarterly SEC filing, made last Thursday: "The company anticipates that existing cash and marketable securities may be insufficient to fund [its] operations and capital requirements for the next year and is currently evaluating financing opportunities."
The company's liquidity breakdown, also from the quarterly filing: as of Sept. 30, Peapod had $3.4 million in cash and cash equivalents and $12.8 million in marketable securities. In the first nine months of 1999, Peapod chewed up nearly $18 million in cash funding operations.
Much of Peapod's appeal to investors has been attributable to its first-mover advantage in the online grocery business, but that appears to be nearing its expiration date as new online competitors like recent IPO Webvan (Nasdaq: WBVN) -- itself down considerably in recent trading -- and offerings backed by the likes of Amazon.com (Nasdaq: AMZN) and Priceline.com (Nasdaq: PCLN) barrel toward consumers. (Click here and here for links to recent stories on the latter two threats.)
And that's not to mention the expanding moves of traditional "steaks-and-mortar" grocery companies into the mix, something discussed at some length in today's edition of The Wall Street Journal.
So Peapod will continue to look for outside help. It revealed today that Wasserstein Perella has been brought in to advise and said talks with interested potential investors are ongoing: "The company is currently evaluating a number of financing alternatives," CEO Bill Malloy said in a statement. "We are confident that additional financing will be obtained by early next year."
Last week, Peapod announced a partnership with food company distribution-logistics services and technology firm McLane Group that included a "significant personal investment" from its chairman, former Wal-Mart (NYSE: WMT) Vice-Chairman Drayton McLane Jr.
McLane has joined Peapod's board and the company hopes his expertise will help it grow efficiently with customer service and logistics perhaps the key component as it expands its delivery service: it rolled out a national offering in mid-October through "Peapod Packages," which make a selection of 7,000 nonperishable grocery items, personal and pet care, and household goods available online throughout the U.S.
If successful, "Packages" could eventually help ready more domestic markets for future full-service Peapod offerings: the company currently serves just nine cities and a small fraction of the nation's population.
There is a flip side to the "Packages" coin, however: it makes Peapod more of a "staples" company than a grocer -- which places it in competition with an entirely new set of companies, including do-it-all retailer Wal-Mart.
The fact that there's so much money being thrown at the online grocery business given the dismal (by traditional measures) financial results Peapod and other companies have produced of late seems to suggest not only that many people believe in the long-term potential of the segment but that investors have only begun to see the shape their next-generation grocery store will take.
As such, the challenge for Peapod may be simply to stay alive long enough to see its business plan mature -- and if it is able to get significant outside financing as suggested, this garden may yet bloom. Still, that it apparently took a thinly worded statement nestled in an SEC filing to draw investor attention to the company's balance sheet and cash flow statement serves as a pretty good reminder that investors should monitor even their most speculative purchases carefully.
Peapod Web Page
Peapod Message Board
Daily Double, 11/4/99: Peapod
Breakfast With the Fool, 11/2/99: "HomeGrocer.com Flush With Cash"
Fool News, 9/22/99: "Priceline.com Licenses Business Model to Online Grocer"
Daily Trouble, 8/16/99: Peapod