Drugstore.com Perseveres Despite Losses

This week, online pharmacy Drugstore.com outdid expectations by reporting a $38.9 million (US$) loss for the quarter ended April 2nd.

Analysts surveyed by First Call Corp., a firm that tracks quarterly earnings of online companies, had projected a loss of $1.02 per share for the quarter, but the results were lighter, with a loss of 86 cents per share. Last year, for the same time period, Drugstore.com lost 48 cents per share.

While the loss could be considered hefty under some circumstances, the news is not all bad for Drugstore.com.

Sales figures for the quarter were a healthy $22.7 million, compared with $652,000 one year ago. According to the company, the figures — which represent a 23 percent increase over the last quarter of 1999 — are due to 295,000 new customers.

Drugstore.com’s total customer base has now surpassed the one million mark.

Ensuring Financial Strength

Overall, Drugstore.com’s level of business has been erratic for a number of reasons, not the least of which is the existing pack of new online pharmacies. Skeptical investors are not convinced of the long term possibilities for any company in the pack to break out and succeed.

Still, all is not doom and gloom for the company. Just last month, $102.6 million was raised in a secondary public offering, an event that nearly doubled the number of Drugstore.com shares in circulation to 13.11 million. The company also benefited from an alliance with online powerhouse Amazon.com, which now owns 23.8 percent of the company. Brick-and-mortar pharmacy chain Rite Aid owns 17.9 percent.

Other investors include venture capitalists Kleiner Perkins Caufield & Byers, General Nutrition Companies, Paul Allen’s Vulcan Ventures and Drugstore.com CEO Peter Neupert.

Boost from Amazon

The company received a significant boost in its online profile when it became the first third party to receive permanent space on Amazon’s home page.

The Drugstore.com tab, marked “Health & Beauty,” appears alongside those of Amazon’s anchor products, including books, music, toys and retail outlets. The companies intend for Drugstore.com to be included in the same shopping cart used for all other Amazon.com stores.

Drugstore.com, already showing a respectable increase in the number of unique visitors, stands to expand exponentially if Amazon.com shoppers respond as strongly to the new alliance as both companies expect.

Meanwhile, as the online cosmetics industry increasingly shows signs of over-saturation, Drugstore.com seized the opportunity earlier this year when it acquired Beauty.com in a stock deal worth $42 million.

Leader of the Pack

While many industry analysts still see Drugstore.com as the online pharmacy leader, future growth will depend upon a number of factors. With recent research indicating that a high percent of online retailers will ultimately fail, Drugstore.com’s leadership position could be solidified as weaker competitors disappear.

In that event, chances are the financial picture could brighten significantly, especially when customers from fallen competitors make their way to Drugstore.com.

However, with investors still shaky about the business-to-consumer electronic commerce sector, it remains to be seen if they will commit themselves to yet another online company that has yet to show a profit.

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