Kozmo Files for $150M IPO

Kozmo.com, a regional e-tailer that promises one-hour delivery of videos, pizzas and other convenience items, filed Tuesday with the U.S. Securities and Exchange Commission (SEC) to sell shares to the public in an initial offering aimed at raising $150 million (US$).

The news comes shortly after Amazon.com said it invested $60 million in the company, which currently offers service in the New York City, Boston, Seattle, Washington, D.C., San Francisco and Los Angeles markets. Amazon also signed a three-year agreement to offer Kozmo's one-hour delivery option for some book, music and toy orders.

In its SEC filing, Kozmo said it plans to enter "at least ten" additional markets by the end of the year. The company is averaging more than 1,000 orders a day, and the number of customers registered on its sites is growing by about 30 percent a month.

Growing Need

Kozmo's promise of quick delivery satisfies a big need in the world of consumer e-commerce. According to a study at the end of last year by Jupiter Communications, only seven percent of the top 93 e-commerce sites offered same-day delivery. Yet Kozmo, like most Internet ventures, has yet to turn a profit, and says in its SEC filing that it expects "substantial losses" to continue "for the foreseeable future."

"It's very early to tell how this thing will do," said IPO.com analyst Jeff Hirschkorn. "They want to deliver people food in one hour using the Internet," a model that has not been proven to work, he said. Other Web retailers that have recently gone public have seen their stock prices drop precipitously, he said, citing Peapod, Inc. and Pets.com.

"I don't see how these people can make money," he said.

On the other hand, Kozmo does have some impressive backers. In addition to Amazon, which will continue to hold a stake of about 31 percent, investors include Japan's Softbank, Flatiron Partners and Chase Venture Capital.

Founded in 1997 by former investment bankers Joseph Park, 28, and Yong Kang, 27, Kozmo has seen explosive growth in its short life. The company has agreements with Starbucks and Ticketmaster Online-City Search, in addition to the Amazon link.

Long Term View

Kozmo has the potential to shake up the online retailing industry. By all accounts, long waits for delivery are among consumers' biggest complaints about online shopping.

Now other companies are looking to capitalize upon the same idea: One competitor, Urbanfetch.com, is expanding its New York City book and movie delivery service to include other items.

Kozmo did not list a price range or estimate how many shares it would sell. "It's definitely going to be a second-quarter deal," said Hirschkorn. The likely price for the shares? "I'd venture a guess of $10 to $12," depending on market conditions, he said. "It's a very questionable business model, but people like to bite on these questionable things."