Garden.com: How to Grow an IPO
GARDEN.COM is definitely no
potted plant; rather, it is growing
like a genetically altered plant.
As the name implies, the
company is the online destination
site for gardening. The founders
include a husband-and-wife
team--Clifford and Lisa Sharples,
both former executives of
pcOrder.com (nasdaq: PCOR)--
and James O'Neil, marketing
manager at Trilogy Software, the
parent corporation of
pcOrder.com. pcOrder.com is a
leading business-to-business site
for computer products.
Now, Garden.com, like so many
of its dot-com peers, has
announced it will go public. The
site plans to issue 4.1 million
shares, possibly during the week
of August 9th. The lead
underwriter is Hambrecht & Quist
and the proposed Nasdaq ticker
symbol is GDEN.
But there is something else growing very quickly at
Garden.com: losses. The accumulated deficit stands
at $26.8 million. In fact, the losses are turning into a
trend: $700,000 from Oct 1995 to June 1996; $2.4
million in 1997; $4.7 million in 1998; and $19.1 million
in 1999. Perhaps someone forgot to water the site.
To be fair, the company is in the process of building
its brand and infrastructure, so profits will take some
time, or so the saying on the Internet goes.
The company's revenue model is straightforward: It's
all about e-commerce. Revenues have jumped from
$1.3 million in 1998 to a projected $5 million this year.
A big reason for the growth in sales was the
astonishing 293% growth of its base. Garden.com
also derives advertising revenues, which increased
from $56,000 in 1998 to $442,000 in 1999. Two of its
better-known sponsors are eToys (nasdaq: ETYS) and
Nestle's.
The reason for the increase was the spike in page
"views". In their prospectus, Garden.com claims that
page views increased from 36.9 million in fiscal year
1998 to 95.7 million in fiscal year 1999.
But this growth does come at a price. Marketing and
sales expenses increased from $2.4 million in 1998 to
$13.3 million in 1999. Garden.com has pursued a
comprehensive branding campaign, advertising in all
mediums, as well as striking prominent distribution
agreements with AOL (nyse: AOL), Yahoo! (nasdaq:
YHOO) and MSN.
Despite the losses, the future looks bright for
Garden.com. After all, America loves gardening--to the
tune of $46.8 billion in 1998, according to the National
Gardening Association. The demographics are also in
favor of gardening, popular primarily because of the
baby boomer generation (35-53 age group). Actually,
according to The Industry Standard, 49% of all Net
users fall into this age set.
What's more, the traditional gardening industry is
beset with problems. Simply put, it is hard to get
useful information and there is a high degree of
fragmentation.
Of course, Garden.com wants to solve the problems:
That is, giving consumers a central location to meet all
gardening needs. The site currently boast to having
more than 16,000 products. You can find such things
as trees, shrubs, fertilizers, tools, furniture, etc.
The site is also chockful of useful content--such as
tips, design advice, feature articles. In fact,
Garden.com even has even launched its own printed
magazine, the Garden Escape, which is retailed in
superstores, nurseries and newsstands. Not
surprisingly, the magazine also acts as a promotional
tool for the Garden.com web site. And to enhance
content, Garden.com has struck deals with
Horticulture Magazine (www.hortmag.com) and
Time/Life Plan Encyclopedia.
Garden.com also uses personalization. You can
establish a personal profile, in which pertinent
gardening information is pushed to you--such as
products based on your expertise, geography (certain
plants may be better suited to your region), etc. There
are also gift registries and gift reminders. You can also
participate in discussion forums. And, if you need
expert advice, you can get answers from the Garden
Doctor.
Okay, but what if you are not a design expert? The
site has over 500 pre-selected designs to choose
from, as well.
The company is not pursing the Amazon.com strategy
of building huge warehouses. Rather, Garden.com
calls its system the "virtual warehouse model." That
is, the company has strategic relationships with over
60 suppliers, which are tied directly into the
Garden.com web site. Of the suppliers, 25 have
exclusive arrangements with Garden.com.
But perhaps the most important strategic relationship
is with Home and Garden TV (HGTV). In the deal,
HGTV received a 20.6% equity stake in Garden.com
for about $10.3 million. Of this amount, an undisclosed
portion was in the form of an advertising credit, in
which Garden.com received promotion on the HGTV
cable channel over a 24-month period.
Garden.com definitely has all the elements--market
size, management, brand, a veteran management
team--to make this a very strong IPO. And, with the
IPO money and currency of its stock behind it,
Garden.com could bloom into one of the Net's
premiere go-to sites.
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