February 29, 2000 4:30 PM PST

Kozmo may deliver itself to the public

Kozmo.com, a popular home-delivery service, is preparing to file for a public offering sometime within the next two weeks, sources close to the deal said.

Credit Suisse First Boston will be the lead underwriter in Kozmo's planned public filing, sources told CNET News.com. Kozmo, based in New York City, promises free delivery within the hour of small-ticket items such as CDs, videos and over-the-counter drugs.

A Kozmo spokesman wouldn't comment on whether the company plans to file a public offering with federal regulators, the first step in launching an IPO. Companies planning an IPO are restricted from commenting on it under federal law.

Investors have mostly shunned the home-delivery market. Webvan, which debuted on the public markets after much fanfare last November, is trading near its 52-week low of $11.62, down from a high of $34, and Peapod's share price has also slumped.

But Kozmo, along with other Net grocers such as Webvan, Peapod and HomeGrocer, are betting that the convenience of home delivery will draw consumers. According to research firm Jupiter Communications, consumers will buy $800 million worth of groceries online this year.

"(Kozmo) offers a value proposition to the lazy, hungry 25-to-30-year-olds in metropolitan areas," said Jill Frankle, director of retail research for Gomez Advisors.

The company, which operates in San Francisco, Seattle, Boston, New York, Washington and Los Angeles, has attracted high-profile partners. Amazon recently invested $60 million, and earlier this month, Starbucks joined the company in a marketing agreement.

Kozmo plans to expand to 14 more cities by the end of the year. In its existing markets, it competes with at least one other home-delivery company. In Los Angeles, for example, Pink Dot offers same-day delivery for a $2.99 fee.

The proposed IPO would come two years after Kozmo launched in March 1998, making it one of the more established Internet companies by today's standards.

Frankle also sees an opportunity for Kozmo to grow by using its proprietary delivery system, a complex software program that plots routes and schedules, to become a subcontractor to other e-commerce companies.

Other delivery companies are evolving to provide more than just groceries. Just this month, Webvan began selling books and other nonfood products.

But analysts are wary about how Kozmo will turn a profit, since they don't charge for delivery and grocery companies traditionally have narrow profit margins.

Kozmo chief executive Joseph Park has said Kozmo will never charge a delivery fee. They don't require a minimum purchase either. Order a can of soda, and Kozmo dispatches a delivery person by van or motorbike, or on foot.

Jupiter analyst Ken Cassar said that under that business model, Kozmo will have to sell enough goods to make up the cost of delivery. "Each time a Kozmo deliveryman leaves the warehouse, he has to be carrying multiple packages," Cassar said.

Kozmo just recently concluded a second round of private financing. Amazon led investors that also included New York-based Flatiron Partners.

 

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