Shares in Webvan, which launched a successful IPO earlier this month with an offering price of $15 a share, climbed as high as 31.38 today before closing at 24.69, unchanged from yesterday.
Analysts with Webvan's underwriters--Goldman Sachs, Merrill Lynch, Deutsche Banc Alex Brown, Donaldson Lufkin & Jenrette, Robertson Stephens and Thomas Weisel--initiated coverage today with "buy" recommendations.
In sizing up near-term prospects for Webvan's stock, analyst Henry Blodget of Merrill Lynch said the fourth quarter could bring some appreciation, but he is less optimistic about the first quarter of next year.
"[Webvan] should benefit from upside to our Q4 revenue estimates," Blodget stated in a research note. "We would not be surprised to see weakness in Q1, however, as a result of the IPO of a potentially viable competitor and the early release of certain shares under the lock-up agreement."
Blodget has a 12- to 18-month price target of 32. Webvan shares soared to 34 on its public debut, but a week later they fell back to near their offering price. They recently began to rise into the mid-20s.
Blodget added that Webvan's long-term success will hinge on increasing consumers acceptance of online grocery shopping, entering new markets, fending off competitors and successfully executing its business plan.
"If Webvan is successful, its long-term opportunity should be huge enough to support [tenfold] stock appreciation over the next 10 years (25 percent a year), even from the current valuation. The execution and competitive challenges facing the company are Herculean, however, so success is in no way a given," Blodget stated.
Over the next decade, the home delivery of groceries and other products is expected to grow to more than $100 billion a year, according to Blodget. And if Webvan can maintain its rank as one of the industry's leaders, the company should grab 25 percent to 40 percent of the market, Blodget estimates.
Webvan's revenues are expected to increase to $113.7 million next year from about $11.6 million this year, Jamie Kiggen, an analyst with Donaldson Lufkin & Jenrette, said in a report. Webvan is expected to become profitable in 2004, Kiggen stated.
Webvan also announced today that it signed leases to open four new distribution centers in Chicago, Dallas, Seattle and Washington, D.C. Webvan currently only serves the San Francisco market.
Bloomberg contributed to this report.