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Pets.com: Reengineering

The general consensus for Pets.com is that the stock is a dog. In fact, in my IPO Tracker column, I made allusions to this. However, the stock now sits at $3 and hey, there can be profit opportunities in beaten-down stocks - especially those that have lots of negativism (the high on the stock was $14).

Unfortunately, Pets.com has become a poster child for e-tailing woes. The company has been spending huge sums on TV advertising, and also paying top-dollar for prime-time real estate on Super Bowl day.

Well, it is now near universal opinion that TV ads don't really work. Rather, with the new Internet austerity, companies need to get creative. Pets.com has definitely been shifting in this direction.

The company's market cap is not hefty: $88 million. But it is liquid. And can still be used as a tool to consolidate the business.

This has already started. Pets.com did an asset purchase of Petsore.com. The cost was about $11 million in shares. What did Pets.com get? The company received the customer database (100,000 new customers), as well as key strategic marketing agreements (Discovery Communications and Safeway grocery stores).

Actually, Pets.com has a flair for getting top backers. Investors include such heavies as Dinsey and Comcast. Perhaps the most significant is Amazon.com, which owns 33%. It is unlikely that Amazon.com will dump Pets.com.

Pets.com has been able to boost its own customer base to 264,000, which was up from 144,000 (at the end of 1999). Repeat customers represent about 50 percent of orders.

The company has been aggressively adding new products. In the last quarter, the number of products increased by 3,000 to more than 15,000. Of course, Pets.com has been focusing on high-margin products, such as accessories for animals other than dogs and cats. There is also focus on proprietary private label products.

Interestingly enough, the famous mascot of the company, its puppet, has become extremely popular. Ironically enough, it has been a hot-seller on Pets.com and could help boost other product sales.

With the stock at these levels, it does not take much to move the price. Look at yesterday. The stock soared 39%. No doubt, these stocks can plunge easily. But as investors have been realizing lately, playing these distressed e-tailing stock can result in fast, daytrading gains.