Stellar IPO prices fall despite e-commerce boom

Most stocks that skyrocketed on the first day of trading have fallen on hard times, with a number falling below their IPO price.

Consumer e-commerce continues to boom, but many e-tailers' stocks are a bust.

Last year, every e-commerce stock that hit the market seemed to skyrocket on its first day of trading. But recently, most stocks have fallen on hard times, and an alarming number of shares have fallen below their initial public offering price.

In addition, the downturn in the Nasdaq composite index this week has only added to many of the e-commerce companies' woes., for instance, has seen its shares decline 27 percent since the company's September IPO. "It's definitely at the top of everyone's mind," Jana Wilson, chief financial officer of, said. "Believe me, I'm watching it."

But Austin, Texas-based is not the only e-commerce underperformer on the market these days. (See related chart.) Among the big losers are:

  • Value America, down 76 percent from its April 1999 offering price of $23

  •, down 67 percent from its May 1999 offering price of $13

  •, down 58 percent from its November 1999 offering price of $14.

    And it's not just the obscure players that are drowning below their public offering prices. Online grocer and venture capital darling Webvan's shares are trading below the company's IPO price; and as of Tuesday, so were those of leading toy e-tailer eToys.

    The shares are dropping at a time when the holiday euphoria surrounding e-commerce seems to be wearing off. This down market has sent e-commerce bellwether down 39 percent from its 52-week high set last month. Meanwhile, eBay, which saw gains after posting a 4 cents per-share profit Tuesday, is still down 29 percent from its 52-week high, set last April.

    Market observers blame the slide in e-commerce stocks on a number of factors, including investors focusing more on profits and becoming jittery over fears that the Federal Reserve will raise interest rates. Many investors also have begun to move their investments into business-to-business e-commerce and other, seemingly hotter, Internet sectors.

    "Investors have a very short attention span in the Internet market," said David Menlow, president of "There are just so many of these stocks in the marketplace, and investors are playing an internal Internet rotation game."

    Although the companies influenced might not see it that way, the depression in e-commerce stocks is a positive development, Menlow and other analysts say. The flood of e-commerce ads this holiday season was a result of what financial analyst Dan Ries calls the "undisciplined money" that was poured into e-commerce through venture capital investments and public offerings last year.

    With seemingly every company spending several million on marketing, few companies' messages rose above the noise, said Ries, of Unterberg Towbin. Now many of those companies are out of cash without having built a business. As investment money dries up, those companies will have to focus on the fundamentals, he said.

    "Last year was about revenue and growth," Ries said. "It doesn't look like the companies that followed that strategy at any cost will be rewarded by the market with a high share price."

    The sinking share prices could also have a negative effect on employee morale. Many high-tech workers trade bigger salaries at old-line firms for stock options at start-ups in the hopes that they will strike Internet gold. But as a company's stock price drops, so does an employee's compensation.

    "Clearly it is (important)," said Dan Rabinowitz, senior vice president and chief financial officer at Peapod. "There are certain employees with a short-term focus, and we have a more difficult time retaining them."

    The downturn may also lead to consolidation in the industry, as companies that aren't able to meet investor expectations end up as acquisition targets or roadkill.

    "They are going to end up being carcasses at some point,"'s Menlow said. "There are going to be many deals that will be perceived to be cheap by opposition companies. It's going to spur them to buy other companies' stock."

    That may happen eventually, but in the meantime, many company executives are emphasizing the importance and challenges of building a business.

    The decline in eToys' shares from its October high of $84.25 to less than $17 today has contributed to's decline, said David Blohm, president and chief executive of the Needham, Mass.-based That's why Blohm has begun to draw distinctions between his company and eToys, emphasizing that sells children's educational products, rather than just toys.

    "There are certain things I can control, like how we handle our customers and our message," Blohm said. "My expectation is that over time, the stock price will take care of itself."

    Meanwhile, CFO David Gow said that having a current stock price below its IPO level has actually been a boon to the Houston-based company.

    "It makes it easier to recruit people because we can offer them options at a lower price," Gow said.

    E-commerce firms trading below their offering price as of Jan. 26
    CompanyIPO priceIPO date1/26 price% change
    Value America$23.00Apr-995.4700-76.22%$13.00May-994.2800-67.08%$14.00Nov-995.8800-58.00%
    Cyberian Outpost$18.00Jul-9810.1900-43.39%$12.00Sep-998.7500-27.08%

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