Searching for Value America's lost value

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Most executives and other company insiders are typically prohibited from selling any shares until 180 days after an IPO, but exceptions are made in the sale of shares to the underwriter to handle over-allotments of stock. In Value America's case, Winn was able to sell 577,500 shares to the underwriter at the IPO price, giving him a windfall of $13.3 million within 30 days of the offering.

Not all have fared so well. Vulcan Ventures, for example, is down on its investment of $60 million, one source said.

Vulcan holds an 18.9 percent stake in the company, which is valued at $42.4 million, based on yesterday's price at the end of regular trading. A Vulcan spokeswoman said the company was not able to comment because the representative for its Value America investment is on vacation.

Union Labor Life Insurance Company, an early investor that funded the company with $15 million, is still in the black with its stake valued at $17.8 million. "We're disappointed with the current value of the stock today, but with the reorganization, we think this company is poised for growth," Brown said.

Cutting workforce by 47 percent
Last month, Value America announced a major restructuring to cut costs. The company plans to reduce 47 percent of its workforce, pare its operations from dozens of product categories (including shoes) to its original core of five categories: PCs, peripherals, software, consumer electronics and office supplies.

Analysts predict that the company has enough cash to last at least through the end of the year, with $115 million at the end of the third quarter.

"We're not worried about having enough cash to make it through," company spokesman David Kuo said. "We have an extremely powerful board and will make the decisions we need to make to run the business."

Board members Smith, William Savoy of Vulcan Ventures and Michael Steed of Pacific Capital Group are some of the directors appointed to a special committee seeking funding sources. They are working with Glenda Dorchak, who was appointed chief executive last month after serving as president of Value America since 1998, and newly appointed chairman Wolf Schmitt.

Analysts have largely applauded the company's move to streamline its operations, but concerns remain.

Value America will not only lose 5 percent of its revenues from cutting the other product categories, but analysts also worry that revenues may shrink further if fewer customers are drawn to the site as it shifts from traditional to online marketing.

"A mile wide and an inch deep"
And as the company reduces its product categories, analysts wonder if the company will no longer be able to differentiate itself. Value America will be focusing on an arena where price competition runs steep.

Kuo defended the restructuring as a necessary step. "We were a mile wide on our product offerings and an inch deep, and now we'll be five categories and a mile deep," he said.

On Wall Street, four analysts rate the stock as a "hold" and are taking a wait-and-see approach.

"Their glaring tactical error was over-spending on the sales and marketing of the company and under-spending on the consumer side," said David Trossman, an analyst with First Union Securities. "They spent a lot on the trial dollar but haven't had much success in the repeat purchase."

Analysts note that the company, though increasing revenues each quarter, has been spending heavily on advertising and marketing to acquire customers at a far higher rate than its competitors. The company has been paying almost $500 per customer in the third quarter, compared with Amazon, which spent less than $15, according to a report by Tom Courtney, an analyst with Banc America Securities.

Regardless of its immediate course, some speculate that it might be best to sell the company in the long run. Winn himself believes that an acquisition by a large Internet, telecommunications or retail brick-and-mortar company would make sense.

And if that happens, he will be ready to dive into the new business.

"I would be glad to give my time to the acquiring company," he said. "I would like to see that company maximize the benefits from its acquisition, and it would be in the interest of Value America shareholders if I'm involved."