E-Tailer Abyss: Beyond.com and Value America

Even though many etailers showed tremendous sales gains in the fourth
quarter of 1999, the fact remains that losses continue to pile-up. The
major concern of investors, of course, is: Will the companies ever make
money?

Just as fast as a Net company can soar, it can also plunge. This has been
the case with Beyond.com (BYND)
. The company is an online e-commerce site for selling software.
Unfortunately, it is a very competitive space. For example, the mighty
Amazon.com recently invaded it. There was also the merger between
Egghead.com and Onsale.

The red ink for Beyond.com has been beyond belief. How much? It’s a
staggering $90 million for the first nine months of 1999. Unfortunately,
sales are expected to fall below expectations — to about $35 million for
the fourth quarter (analysts had pegged about $50 million). The stock is
now selling for a lowly 8-1/2. The 52-week high was $37.

Yesterday, Beyond.com announced that it will slash 20 percent of its work force —
which even included the Chief Executive Officer, Mark Breier (he says he will now be an advisor
to start-ups). The Chief Financial Officer, Rick Neely, will be the interim
CEO, while a search firm will look for a new one.

Interestingly enough, the company will change its focus, now targeting the
enticing business-to-business (B2B) space. In fact, the company already has
major government and corporate customers.

Another etailing casaulty has been Value America (VUSA)
, despite the fact the company has star backers, such as Paul Allen and
the founder of Federal Express, Frederick Smith.

The stock was as high as $74-1/4. Now the stock is trading for $5-1/2.
The company is a superstore etailing site. Value America has also been a
huge money loser — $97.9 million for the first nine months of 1999.

Yes, the CEO resigned and about 50 percent of the workforce was cut (about 300
employees). The company will also reduce the number of product lines to
five (PCs, peripherals, software, consumer electronics and office
supplies).

It’s tempting to invest in these companies; they look very cheap. But the
big problem is that, with slumping stock prices, these companies will not
be able to go to the equity markets to raise money. One example of this
problem was CyberCash (CYCH)
, which had to do a private offering of securities, substantially
diluting existing shareholders. The stock has been weak for years.

True, there is a possibility of an acquisition. But with Value American and
Beyond.com embroiled in turmoil, the valuations will not be strong.
Rather, it is more likely that potential suitors will be scared of buying
such companies.

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