The Buy.com IPO has left the building. Citing "market conditions" as being detrimental to the offering, the stock's underwriter has pulled the deal off the market.
Market conditions? More like market reality. It's true that the IPO market has been running surprisingly weak. I was talking about that very topic earlier this week. However, the salient point here is that Buy.com just wasn't an attractive debut.
Last week, Tim Beyers took Buy.com to task for how the IPO proceeds were being allocated. Roughly $2.30 per share of the money being raised on the new stock would go to pay back money that the company owed its founder.
Buy.com doesn't get any prettier as you start to dig deeper. In 2002, the company produced $301.7 million in revenue. Last year, it generated just $290.8 million. Things have improved so far this year, with sales climbing 15% higher on a narrower deficit, but whom are we kidding here? If you're buying into e-commerce because that's where shoppers are migrating, the last thing you want to own is an online retailer that's growing slower than the e-tail market as a whole.
If you want a profitable online retailer, you have the Amazon.com (NASDAQ:AMZN) bellwether, or a niche site like Blue Nile (NASDAQ:NILE). If you dabble into the profitless realm, at least make sure that it's a company growing substantially faster than Amazon, like Overstock.com (NASDAQ:OSTK).
The one thing that really got my goat with Buy.com was that it went public in 2000 and was taken private as a disgraced penny stock a year later. The company had raised more than $140 million at the time. Looking over the company's S-1 filing, I see that it currently has negative working capital. Where did the money go, Buy.com? Why would investors want to give the company additional financing?
After initially looking to price its offering between $11 and $13 a stub, Buy.com's underwriter marked it down to $8. It seems that our own Tim Beyers and Rich Smith weren't the only folks concerned about the company.
This is a good thing. Buy.com had earmarked $25 million, or nearly $6 for each new share, to launch an advertising campaign. Obviously, Overstock.com has fared well with those "It's all about the O" spots. Even eBay (NASDAQ:EBAY) is a more visible marketer over the holidays. However, with the IPO priced at $8, you would be left with a company that would be simply handing over that money to its founder, with the balance spent on advertising. That would leave Buy.com back with a balance sheet in the hole.
Buy.com needs more than handouts. That's why maybe this time will be better spent carving out something far more valuable -- a personality.
Blue Nile and Overstock.com were singled out by the Rule Breakers newsletter analytical team, and Amazon.com and eBay are Motley Fool Stock Advisor picks. Subscribe to either premium research product this month, and you will get the brand new Stocks 2006 for free. Blue Nile is also a recommendation of the Motley Fool Hidden Gems newsletter service.
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Longtime Fool contributor Rick Munarriz remembers when Buy.com paid the price for its razor-thin gross margins, so he doesn't like it that Buy.com prides itself on besting Amazon prices by 10% on 900,000 books. He does not own shares in any of the companies mentioned in this story. T he Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
