May 30, 2002 6:05 PM PDT

Overstock makes modest market debut

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Online liquidation and discount store Overstock.com made a tepid debut in the stock market Thursday.

Overstock closed at $13.03, just slightly more than the $13 price the stock sold for during its initial public offering Wednesday. Overstock auctioned its stock in a process similar to a so-called Dutch Auction, which allows individuals as well as institutional investors to submit bids with the price they are willing to pay and the number of shares they want to buy.

Earlier in the day, the shares had reached as high as $14.11 and dipped as low as $12.99.

While there have been a few Internet-related offerings recently, Overstock is the first online-only retailer to go public since the spring of 2000, when shares in VarsityBooks.com sold for $10 on their first day, according to Thomson Financial. VarsityBooks.com now trades under a different name on Nasdaq's small-cap market.

"This is not an indication that the e-commerce market has turned around certainly," said Vernon Keenan, an analyst with San Francisco-based Keenan Vision. "The upside is that the stock price was supported by strong (trading) volume."

But Wall Street appears to be warming up to Internet stocks again, after slamming the door shut on Internet IPOs for more than a year. Last week, video rental company Netflix raised $82 million in its public offering, and earlier this year online payment site PayPal sold $70 million worth of shares.

In an attempt to ride this wave of renewed interest, online travel site Orbitz filed for a public offering last week.

"There may be feelings among investors that a lot of the weaker companies have been weeded out," said David Kathman, a stock analyst for financial services company Morningstar.

David Menlow, president of IPOfinancial.com, said the recent spate of Internet IPOs shouldn't be seen as a welcome mat for a flood of dot-com offerings.

"I sure hope other dot-coms don't think the door has opened to the capital markets," he said. "This is not something that everybody else can get through."

One of the first companies to take advantage of the Internet shakeout, Overstock saw a slew of other competitors, including established liquidation companies, descend on broken-down Internet companies. The pickings have nearly dried up, as e-commerce companies have gone out of business, been acquired or caught on with the public.

Overstock generated $40 million in revenue last year, up 57 percent from the previous year, and narrowed its net loss to $14.2 million, compared to a net loss of $21.3 million in 2000. In the first quarter this year, the company lost $9.7 million on $10 million in sales. Overstock has seen its quarterly operating costs decline by 94 percent over the last eight quarters.

Menlow said Overstock's business is improving, but Wall Street will need some patience to see profits.

"This is not a company that's going to immediately take the (IPO) proceeds and turn them into bottom-line profits," said Menlow. "This is a work in progress."

The company, which had $3.7 million in cash at the end of last year, has a bank debt of $3 million due June 1. The 2-year-old company never received venture funding, despite coming into existence during the Internet boom. Documents show that Overstock received more than $6 million in private investment Monday.

"Any company this young and still losing money is risky, in my book," Kathman said. "The company also has quite a ways to go before it becomes profitable, and growth appears to be slowing. Moreover, the other Internet companies that have gone public, PayPal and Netflix, dominate the niches they operate in. But Overstock has plenty of competitors."

Amazon.com owned a 7 percent stake in Overstock before selling its shares during the IPO. The two companies began competing head-to-head when Amazon started selling overstock goods.

Amazon and Overstock found themselves thrust together after the latter acquired online sporting goods site Gear.com in October 2000. Amazon had invested in Gear.com.

Last summer, Overstock abruptly pulled out of a deal to supply Amazon with used computers and electronic equipment, citing poor sales.

News.com's Margaret Kane contributed to this report.

 

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