Buy.com (Nasdaq: BUYX) gained 12 1/8 to 25 1/8 in its initial public offering Tuesday.
Shares of the online retailer opened at 30 1/8 Tuesday, more than double its offering price. The company offered 14 million shares with Merrill Lynch as the lead underwriter.
Buy.com (profile) runs a network of online stores that peddle everything from computer hardware and software to books, music and video to golf and travel.
Analysts, however, aren't rating Buy.com an IPO hit. Some analysts and industry watchers have said they expect Buy.com to fall in the aftermarket because of negative profit margins and a customer base that may not stick around if the company raises prices.
Nevertheless, Buy.com has become one of the largest e-commerce sites on the Web in terms of revenue and users despite competing with e-tailing players such as Amazon.com (Nasdaq: AMZN), Egghead.com (Nasdaq: EGGS) among others.
The company has 1.9 million customers, 4.7 unique visitors a month and stellar sales growth. For the three months ending Dec. 31, Buy.com had sales of $200.6 million. For 1999, Buy.com reported pro forma sales of $597.8 million.
Buy.com's profit margins, however, are dreadful. For the last three months of the year, margins improved to a negative 0.9 percent from a negative 1.4 percent for the same period in 1998. For 1999, the company lost $145.8 million.
"They have a strong brand," says Randall Roth, an analyst with Renaissance Capital. "But the margins are either going to be their genius or their downfall."
In regulatory filings, Buy.com said it will try to boost margins with advertising revenue. But Buy.com only received about 2 percent of its sales from advertising, the company said. To improve margins, the company said it has moved to raise prices on certain goods, but offers no guarantees for overall advances in this area.
According to regulatory filings, here are some risks to ponder with Buy.com:
Softbank will "effectively control the votes of approximately 77.8 percent of our common stock on significant corporate actions and 29.7 percent on routine corporate governance matters immediately after this offering," the company said.