THE DAY AHEAD: Can Pets.com's sock puppet save its stock?

Larry Dignan
4 min read

What's an e-tailer to do when it's one of the worst performing initial public offerings of 2000, Wall Street isn't interested and the competition is intense? If you're Pets.com, you make use of your best asset -- the sock puppet mascot.

Yes, the famous Pets.com sock puppet, who has appeared in ads during the Super Bowl and the Macy's Thanksgiving Day Parade. The company (Nasdaq: IPET) said Monday it is now taking pre-orders for the sock puppet and selling all kinds of items related to its mascot. Mugs, bowls, shirts, hats and even watches are available.

Pets.com: Will it thrive?

In a little-noticed press release, Pets.com preached about the puppet and quoted a lot of folks just dying to boost sales. ``A dog may be man's best friend, but a Sock Puppet is man's best friend-maker," said Rick Miller, of Boston, who thinks the sock puppet can break the ice at any social occasion.

Pets.com should send Miller and its sock puppet to Wall Street. The company could use a few friends. Pets.com, which was a dog from day one, is trading down about 80 percent from its February IPO.

According to Pets.com, the sock puppet will add an additional revenue stream, but the company didn't give a forecast. Of course, the company has to get some payoff from the $59.6 million it spent on marketing over the last two quarters. Now we know why Amazon.com (Nasdaq: AMZN) owns a big stake in the company -- it's all about the puppet.

Intrigued that a sock puppet could single-handedly save a $2 stock from oblivion, we called around to see what those ever-optimistic Pets.com IPO underwriters had to say. After all, if these underwriters loved the Pets.com IPO at $11 in February, they must be pounding the table on the stock now, especially with a potential sock puppet bonanza on deck.

We called Kevin Hunt, an analyst with Thomas Weisel, an underwriter for the Pets.com IPO. He didn't sound thrilled about our stock puppet sales questions. He downplayed the sock puppet effect, but still has a "buy" rating on the stock. "We haven't factored it in yet," he said. "It might have a modest effect."

Modest? Pets.com is selling watches for $49.99 and a puppet replica for $20. This could be huge. The company reported first quarter sales of $7.7 million on negative margins. Who knows what the puppet merchandise, sold on Pets.com, Amazon and Go.com (NYSE: DIS, GO), could bring in? The full sock puppet effect will be seen in the third quarter. With any luck, the sock puppet could bring Pets.com's margins up to zero, a dramatic improvement. You'd think analysts would be bullish.

Oh yeah, there are those pesky losses and competition from the bricks-and-mortar crowd. Not even the sock puppet could prevent Pets.com's first quarter net loss of $39.1 million, or $2.54 per share. Pets.com is expected to lose piles of money through 2002, but the company may be able to cut back on its marketing expenses if it has a lot of sock puppet gear in the field.

Of course, we may be getting ahead of ourselves with the sock puppet optimism. Hunt said the stock won't "do a whole lot" in the short-term. And there are risks -- it's not hard to make your own sock puppet. A marker and a white sock could go a long way.

One message board poster on Yahoo! Finance summed it up well. "After 6 months of trial and error I just learned how to make a sock puppet at home. If the general public figures this out too, then I guess we can't count on the extra revenue from the IPET puppet sales."

We couldn't say it better ourselves. But you do-it-yourself sock puppet makers better be careful. Pets.com will go to court over its trademark sock puppet.

Pets.com's most interesting dogfight is with Robert Smigel, the creator of Triumph, the Insult Comic Dog. Smigel, a former writer for the Conan O'Brien show, said Pets.com stole the sock puppet idea from him. Pets.com, which said Smigel started the whole battle, fired back in court saying it didn't break any trademarks.

We must admit there isn't much of a resemblance, but the canine spat is entertaining.

At least Triumph is getting some mileage out of it. The rottweiler puppet sang a ditty just for Pets.com.

To the Police's "Every Breath You Take" Triumph sang:

"Every joke you take/Every rip-off you make,

/Like a dot-com fake/I will poop on you."