Summer Survival Strategy

Given its highly visible six-month ticker nosedive, many investors include eToys (ETYS) on the short list of imminently endangered Internet companies, along with online grocer Peapod (PPOD), health site (KOOP) and music e-tailer CDNow (CDNW).

That’s what a 92 percent loss since last October – and new lows seemingly every day – will do for you. Yet in terms of market capitalization, at least, eToys remains a giant among e-tailers. Only six of the other 40 e-tailers listed on’s Internet Stock List have market caps higher than eToys’ $659 million through Monday’s trading.

Compare that amount with those of truly anemic e-tailers such as (AHWY), (FASH) and Bluefly (BFLY) – which carry market caps of $15.7 million, $20.4 million and $27.1 million, respectively. Further, with about $180 million in cash, eToys isn’t faced with the prospect of running out of money this year.

Still, knowing you’re expiring at a slower rate provides scant solace for the dying, and even less for shareholders. Thus, with an arid six-month gap standing between it and next fall’s holiday shopping season, eToys can ill-afford to linger on the terminal list, lest someone tries to put a sheet over its head. That’s why the company on Tuesday unveiled several new strategy initiatives designed to boost revenues, improve profit margins and add to its base of 1.7 million customers.

Chief among them is an $8 million summer marketing blitz designed to increase sales during the slowest period of the year for e-tailers. eToys is counting on online customers to snap up swimming pools, boogie boards, camping equipment, sidewalk chalk and a number of other summer activity-oriented products.

The company also plans to introduce a line of eToys-branded products, which could carry profit margins as high as 70 percent, and to eventually sell advertising space on its site.

While launching a multimillion-dollar marketing campaign during the summer – when far fewer people are shopping online – is a bold move for any e-tailer, in this case it is a boldness borne of desperation. For while it has enough cash to get through this year, eToys likely is more than two years away from profitability (if it ever gets there). It will need to raise funds sometime before then, and unless it can regain investor confidence, that may be virtually impossible.

Early market reaction to eToys moves was favorable: ETYS was up nearly 19 percent to 6 1/2 late Tuesday morning, though the Nasdaq also was up sharply in early trading.

Will eToys’ summer strategy work? To be honest, I hope so. I like to see quality rewarded, and I believe eToys is one of the best e-tailers on the Web. Despite complaints about order fulfillment over the holidays, eToys still outperformed its online rivals, including Toy R, and even (AMZN).

But as an investor, I just wouldn’t bet on it right now.

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