eToys Hitting Bottom
Weaker-than-expected results for the current holiday season, dwindling cash
levels and analyst downgrades ganged up on eToys today, sending the online
toy retailer's stock
Goldman Sachs, which has been hired by eToys to explore merger and
acquisition opportunities, also downgraded the stock to market perform from
outperform. And Robertson Stephens today placed its investment rating and
loss estimates for eToys Inc. on review. It had rated the company a buy.
Meanwhile, the research arm of Goldman Sachs also said that overall online
holiday e-commerce sales for the week ending Dec. 10 were lower than expected
and there exists a "significant risk" that seasonal sales will come in at the
low end of the firm's estimate of 50 to 100 percent year-over-year growth.
The firm said sales for Week 6 of its holiday season survey showed a 24
percent year-over-year gain, gain vs. the company's 45 percent estimate. The
figures resulted in a holiday season gain of 115 percent vs. 170 percent as
of the week before.
"We continue to see a significant deterioration in selected e-commerce
companies' trends, but not in all," GS said. Exceptions included Amazon.com and
drugstore.com.
eToys late Friday announced weaker-than-expected results for the current
holiday season and, amid dwindling cash levels, said it will take
"aggressive" measures to continue as a going concern, including the possible
sale of the company.
eToys said it anticipates sales for the quarter ending Dec. 31 of between
$120 million to $130 million, down from the $210 million to $240 million
previously projected.
The company said it believed the revenue shortfall was in large part
attributable to a harsh retail climate driven by concerns over the economy,
the current disfavor of Internet retailing, and a consumer population
meaningfully distracted by the presidential election and its aftermath.
Are there lessons here for other e-tailers? The biggest lesson is that "any
pure play ... has challenges that multi channel retailers don't have, the
obstacles are bigger" said Christine Loeber, program manager for online
retail strategies at market researcher Yankee Group.
"Customers like to have
options ... multi channel retailers provide those options ... eToys, I can't
touch it, I can't feel it, I can't go into a store to buy it or return it ... there's really a lot of limitations that go along with that avenue of sales."
eToys in its statement Friday also said that:
Goldman, Sachs, in its downgrade notice, said that "Strong performance during
the holidays was required to obtain additional funding to achieve
profitability and those prospects are now diminished."
"The company plunging to as little as 25 cents in early trading.