2HRS2GO: Value America must prove itself
Value America Inc. (Nasdaq: VUSA) surely gets value out of its stock.
The online department store announced a first quarter loss that was a penny-per-share wider than First Call's consensus, but Wall Street seems unconcerned. IPO underwriters BancBoston Robertson Stephens and Volpe Brown Whelan & Co. each reiterated "buy" ratings and raised revenue estimates for Value America. Investors responded by driving the stock up a bit today, as Value America shares had gained almost 5 percent by early afternoon.
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To give the Value America credit, its sales growth was strong, with a 48 percent sequential increase in a quarter usually weak for retailers. At the same time, gross margins gained 3.8 percent, while sales and marketing expenses went up just 4 percent.
But the upbeat reaction still seems perplexing. Boosting revenue to $28 million from $18 million is hardly impressive when a strong economy is fueling the entire retail industry, both online and offline.
Since Value America seems to be fashioning itself as the Wal-Mart of the Web -- 25 product categories, 1,500 brands and 150 new brands every month, gushes Volpe Brown's research note -- let's take a look at the real thing. And what do you know? Wal-Mart Stores Inc. (NYSE: WMT) today reported its highest income ever for a non-holiday quarter. The Bentonville, Ark.-based company not only earned money, it easily surpassed Wall Street consensus.
On the other hand, Value America not only missed estimates, its quarterly results convinced analysts to expect even higher losses than previously forecast for the rest of the year; 12 cents per share more, in the case of Robby Stephens' Keith Benjamin and Lauren Cooks Levitan, and 2 cents wider, in the estimation of Volpe Brown's Andrea Williams and Eric Fuller.
Comparing an established industry gargantuan with a relatively new company isn't entirely fair. Still, you have to wonder how much of Value America's business will be sustained if the company has to take business from others instead of relying on the overall propensity to spend. The competition isn't limited to other retailers either, not when the Internet is sprouting with auction sites, and not as more companies sell their own goods directly over the Web.
It's not a pleasant thought, especially not for a company already expected to lose money all of this year and next, even in the best of scenarios.
Stock offerings as seed money
Hopefully this won't be a common practice in the future: use your IPO to set a market, then applying for a secondary offering less than 90 days later.
Critical Path Inc. (Nasdaq: CPTH) is doing just that, as the company today filed for a follow-up offering of 4 million shares. That takes a lot of guts -- or shamelessness -- considering it just went public at the end of March. It certainly shows some lack of regard for shareholders who just bought the stock.
But it is a logical extension of the current trend. Once upon a time, you never went public until you were an established, solid business looking to expand. Then the market became a source of venture capital. Now it's being used as a source of seed money, or at least that seems to be what it is for Critical Path.
Don't get me wrong. Managing corporate e-mail, as Critical Path does, is like a great idea and a much needed service for businesses. But going public with quarterly revenues of barely $1 million seems a bit early. Returning to the market so soon completely looks even worse, especially when one-third of the shares are being sold by venture backers.
Critical Path already raked in $115.5 million from the IPO. Show us what you can do with that first, before asking for more.
Other things to note:
The overall technology market was higher for the day, with two left in regular trading. The Nasdaq Composite Index had gained 34 to 2560.39, the S&P 500 had risen 14.47 to 1354.77, and the Dow Jones Industrial Average was up 47.82 to 11055.07. 22GO>