EToys Plans IPO, May Raise $115 Million
Santa Monica-based online toy retailer EToys filed papers Wednesday to raise as much as $115 million in an initial public offering that is expected to be one of the Tech Coast’s biggest this year.
Since launching its Internet store in October 1997, EToys has become one of the best-known companies in the fast-growing electronic-commerce sector and is the top Web-based toy seller. The firm had $24 million in sales last year--including $22.9 million in the three months before Christmas--and has sold toys, video games, software and music to more than 320,000 customers, according to its filing with the Securities and Exchange Commission.
But like most Internet companies, EToys has yet to turn a profit. According to the SEC filing, the company has lost $17.5 million since its inception, including $16.4 million last year.
In fact, the financial data show that EToys’ losses are growing from quarter to quarter. The firm lost $9.9 million in the last three months of 1998, compared with a loss of just under $1.2 million in the first three months of the year.
The company emphasized that it expects its losses to “increase significantly” as it spends more money to promote its brand, enhance its Web site and upgrade the computer systems that track sales and inventory, the filing noted.
But losses have hardly stopped investors from snapping up shares of Internet stocks. Although the EToys filing didn’t reveal the terms of the offering--such as how many shares would be sold or at what price--analysts are optimistic about the company’s prospects.
“They’ve got good brand recognition, a good product offering, a good marketing strategy and a good underwriter,” said Gail Bronson, senior analyst with data service IPO Monitor in Palo Alto.
EToys’ store, at https://www.etoys.com, was the fifth-most-popular online shopping site in December, according to Media Metrix, a New York firm that tracks Web traffic.
As the dominant online toy seller, EToys will have an advantage because it will be the first in its category to sell shares to the public, said David Menlow, president of IPO Financial Network.
The company’s impressive list of underwriters also bodes well for the offering, he said. Goldman Sachs will be the lead underwriter, joined by BancBoston Robertson Stephens; Donaldson, Lufkin & Jenrette; and Merrill Lynch.
EToys’ main rival is Toys R Us, but the Paramus, N.J.-based retail giant has been slow to set up an online store, said Nicole Vanderbilt, senior analyst for online commerce with Jupiter Communications in New York. Although books and music are still more popular than toys among Web shoppers, “this holiday season was a very strong one for the toy category online, and we think that will continue,” she said.
EToys’ offering will be among the biggest Tech Coast IPOs this year, possibly the biggest, said Bill Manassero of the Software Council of Southern California in Torrance.
“It’s a well-positioned company, it has strong management and it’s the most visible company in its market segment on the Internet,” he said.
EToys’ shares will trade on Nasdaq under the symbol ETYS.
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