Refuting rumors that it would run out of cash by the end of 2000, online toy retailer eToys bought itself some breathing room Tuesday with $100 million (US$) in capital raised from the sale of preferred convertible stock.
Just last month, Goldman Sachs analyst Anthony Noto included eToys on his list of 10 publicly-traded Internet retailers that would have to find infusions of new cash within the next several months. eToys claimed it had enough funding to continue operations into next year, but analysts and investors remained skeptical.
While the new cash may not help eToys translate this year’s business activity into profits, many analysts believe the funding will greatly benefit the company.
“They could use $150 million to get through the next 12 months,” said Sean McGowan, an analyst at Gerard Klauer Mattison, adding that he would not be surprised to see the company sell off part of its European operation or announce a major alliance with another e-tailer.
eToys has reportedly lost more than $220 million since starting operations in late 1997. Shares of eToys, which reached a high of $84.25 on October 11, 1999, traded Tuesday at about $6 to $7 per share.
Diversification is Key
Still running neck and neck with industry leader Toysrus.com, eToys is strengthening its market position in anticipation of the impending holiday season online toy wars. After adding such items as software, books, music, videos and music this year, the company purchased eParties, a fledgling party planning company, for $1.6 million.
Meanwhile, Wall Street is watching the company carefully to see if it can achieve balance during non-holiday periods. Like many other dot-coms, eToys saw its value drop dramatically after a holiday season marred by delivery problems and dissatisfied customers.
KBkids.com Nixes IPO
In related news, eToys competitor KBkids.com, a unit of Consolidated Stores Corp., asked securities regulators on Tuesday to withdraw its planned $210 million initial public offering.
Without elaborating, the Denver, Colorado-based company stated in its filing with the Securities and Exchange Commission (SEC) that the withdrawal request is “consistent with the public interest and the protection of investors.”
Reportedly, KBkids.com had earmarked potential proceeds from the IPO for operating capital, marketing and sales expenses and new product development.
The move comes as the Internet IPO market continues to weaken. An estimated $846 million was raised in Internet IPOs in May, about one third of 1999’s $2.2 billion monthly average. Several companies have seen their stock prices dip below their offering prices following their IPOs.
Shares of Consolidated Stores Corp. were up 1/4 to 13 1/8 in mid-afternoon trading Tuesday on the New York Stock Exchange.