Webvan is preparing to launch one of the most anticipated initial public offerings of the year, with the shares beginning public trading as soon as this week. The IPO was scheduled to take place earlier this month but postponed at the request of the Securities and Exchange Commission, which was concerned over the
Webvan could raise up to $325 million, based on the high end of its $11 to $13 price range and the 25 million shares it plans to float. If those numbers hold up, the young company would start with a market capitalization of $4.1 billion--nearly a quarter of the value of supermarket giant Safeway.
Given the recent performance of IPOs from Women.com and Sycamore Networks, investors may be salivating at the potential first-day gains. But if history provides any lessons, it's that investing in online grocers is no trip through the express line.
PeaPod, a pioneer in the field that first sold stock to the public in 1997, is trading at about 10, well below its 52-week high of 15.68. Streamline, which went public in July, has fallen to about 7 from a high of about 13. NetGrocer pulled its IPO plans last year citing poor market conditions.
Webvan, which began delivering groceries in June, posted revenues of $395,000 for the six months ended June 30, compared with zero a year ago. The company lost $35.1 million during that period, compared with a loss of $3.26 million a year ago.
Nonetheless, George Dahlman, an analyst with U.S. Bancorp Piper Jaffray, said investors are hoping online groceries will be the next milkman concept.
Large investors such as Amazon also are bullish. The leading online retailer invested $42.5 million in HomeGrocer last May, hoping to spur its national expansion plans. Former Netscape CEO Jim Barksdale threw in an additional $5 million.
Meanwhile, research firm Jupiter Communications projects the industry to grow to $3.5 billion by the year 2002, far above estimated sales of $350 million this year.
Dahlman said the industry is undergoing its ups and downs as it struggles with questions about methods of distribution, whether to be a niche grocery player, and at what point companies should enter the nongrocery business.
In terms of distribution, Dahlman said: "You can't deliver milk and bananas by FedEx, but can you set up local delivery to serve a national market?"
Online grocers are also considering whether to specialize in such areas as ethnic foods or fine wines in an effort to distinguish themselves from competitors, he added, and they're evaluating whether to expand into delivering dry cleaning, prescription drugs, or shoe repair with the groceries. "It's a question of being in the business of delivering goods and services, or the grocery business," he said.
It's also a question of size, and Webvan's massive infusion of cash from the IPO will make it an immediate giant in the industry.