eToys Ready For Holiday Rush

Last Thursday I wrote that e-tailers should enjoy a resurgence on Wall
Street as holiday shopping activity picks up momentum.

Obviously some e-tail companies and stocks will fare better than others.
Still, look for the sector as a whole to outperform most other sectors
as the millennium winds down and spending gears up.

Of all the online merchants, though, I predict the season’s big winner
will be eToys. I’ve thought this for awhile, and after learning Tuesday
that the Toys ‘R Us deal with venture firm Benchmark Capital to develop
an Internet toy-store unit has been abandoned, I’m even more convinced
that eToys can emerge as the clear category leader.

This bodes well for the company’s stock, which quickly plummeted after
an impressive May 19 IPO that saw share price reach as high as $85. (ETYS)
shares hit their low in Aug. 9, trading at $28.13. Tuesday afternoon
shares of eToys were up to $38.75.

Believe it or not, cybershopping is still in its infancy. Online retail
sales are expected to increase more than tenfold in the next few years;
Forrester Research forecasts e-tail revenue to skyrocket from $7.8
billion this year to $108 billion in 2003.

Online toy sales also are a fraction of what they will be. Jupiter
Communications predicts Internet sales of toys and games to grow from
$53 million this year to $555 million by 2002, while Forrester projects
that by 2003, online toy sales will hit $1.5 billion. (Given that the
current annual toy market is about $23 million, both of those estimates
could be low.)

As early as we are in the adoption curve, there’s a big opportunity this
fall to permanently win the business of thousands of toy shoppers. With
a strong brand name, a huge war chest from its $166 million IPO
available for marketing and promotional efforts, and (perhaps most
important) a well-organized, user-friendly site, eToys is in a position
to capitalize. is not. Only recently spun off from its ailing
bricks-and-mortar parent, is still trying to get its act
together online. While the company has been promising a Web site
redesign, its current site simply doesn’t measure up to eToys’.

Founded in 1997, eToys had a spectacular fourth quarter last year,
racking up $22.9 million, or 76% of its $30 million revenue for the
fiscal year ended in March. Its success has attracted a number of
competitors, from bricks-and-mortar toy sales leader Wal-Mart to, which opened a toy site in July.

I expect eToys to more than hold its own against its rivals. It clearly
understands the needs of the online shopper, something that can’t yet be
said about Toys ‘R Us or Wal-Mart, which reportedly is revamping its
site for the holiday rush.

While shares of ETYS were a better bargain a week ago, I still see plenty of upside in coming months.

ALL NEW!’s HotWatch a monthly e-mail subscription for $99,
featuring Internet Stock Report’s top 10 noteworthy Internet stocks for the
month. Each month you will receive in-depth analysis on the top 10 Internet
stocks to watch with the information you need to assess the fast-paced nature
of Internet stocks. Staying on top of market changes in the Internet Stock
market is what counts. For $99 per year, you receive 12 timely issues sent to
you by e-mail. Don’t wait, our next issue will be out before you know it with a
whole new perspective on the market. Sign up today at: e-newsletters

News Around the Web