Discounted Goods at the IPO Check-Out Counter

Grocery shopping was never this exciting. While the pioneers of online
grocery shopping have cratered — such as Peapod (PPOD)

and NetGrocer
Webvan (WBVN)
seems to be much more hopeful.

During its IPO on November 5, the company was priced at $15, reached a high
of $34, and closed at $24-7/8.
But since then, the stock has rotted like an old peach, falling back to

The company had all the ingredients for a successful IPO. The underwriter
was Goldman Sachs. The venture capitalists included Benchmark and Sequoia.
The founder was Loius Borders (yep, the founder of Borders Books and
someone who definitely understands distribution logistics). The CEO is an
all-star, formerly with Andersen Consulting (a company that certainly
understands complex high-tech undertakings).

But I think the problem is quite simple: the “quiet period.” This is
something peculiar to the IPO game. As the name implies, the quiet period
requires that a company’s management and advisors not hype the stock.
However, with Webvan, there was a violation of the quite period.
In other words, the management team was extremely good at getting
publicity. So, in order to placate an angry SEC, Webvan became very, very
quiet. And, predictably the stock has suffered.

The good news is that there is a limit to the quiet period: 26 days after
the IPO. Once this is lifted, the underwriters begin making their research
recommendations (which are in most cases “strong buy” recommendations). Big
deals are also announced. I’m sure the Webvan management is counting the
days until they can tell the world about their company.

And there is lots to tell. The company plans to build 26
ultra-sophisticated warehouses across the nation to store grocery items.
They have created a hub-and-spoke system with trucks and vans that deliver
items to consumers. Basically, the result is “same day delivery.”

The business plan requires billions in capital expenditures. But once this
is done and revenues hit critical mass, the upside can be enormous.
Estimates are that operating margins could be as much as 12 percent —
which is huge for the grocery industry, which is known for slim margins.

But whether they achieve these results or not, the chances are still good
that the company will enjoy a good short-term pop. This could be the ideal
company to play the quiet period. So, mark your calendars for December 1,
1999, when the quiet period will finally be a thing of the past for Webvan.

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