Rajiv,
You raise some interesting points, although the tone certainly suggests a degree of negative hype.
eToys has $176MM in cash. Your projection of them running out of cash by 4Q00 is pretty much a shot in the dark. They built the #5 most-trafficked site on the Internet last holidays without burning even close to $10MM/month in cash. Granted, this Christmas will be a different ball game, but by any logical measure, they are in a very safe cash position. And, plus the debt markets have been more than favorable to web companies - witness Amazon and Webvan.
With regards to the P/S multiple, you said that you thought eToys would be a trading at <$5/share "next year" putting them at <$500MM market cap. eToys is projecting $120MM this year at $400MM+ next year. So, I said that you were projecting a 1x sales on a top e-commerce company. Your ONSL/UBID/EGGS reference are all third-tier players, two with auction models. If I take AMZNs or BYNDs P/S multiple of (7x-14x), that would put eToys market cap next year at $3BB-$6BB. Suggesting that the current price is a little safer than you like to position.
eToys is also just ramping up inventory to account for holiday sales. You can't compare today's inventory ($11MM) with last quarters revenues ($8MM) given the heavy seasonality of the toy business (80%+ sales in Nov/Dec). You take that mistaken multiple and apply it to holiday sales and are trying to say that eToys will need $400MM in inventory to reach $100MM in sales in December and you wonder where they get the working capital. That's again your negative hype. Any logical investor realizes that they are building out distribution and inventory to meet the heavy sales they will find in the holidays.
Finally, I'm curious how exactly you know that 100MM shares of eToys has a 6-month post-IPO lock-up. Private shares have a variety of lock-ups on them. That's 85% of the total shares outstanding. And considering atleast 25%-30% of the shares account for an option pool which generally have 4 year vesting periods, I wonder why you think there's a 6-month lock-up on all of them. Additionally, debt and equity investors in different rounds have different lock-ups. So, I wonder if this is again some negative hype.
There are a lot of short hypsters out there. You have some reasons so I don't want to call you a hypster. But, it seems pretty clear that your financial analysis is pretty rudimentary and slanted by your position in the stock. There are risks in this stock, but not the ones you mention. I think competitive risk is key. eToys needs to be #1 in their category this Christmas. If they don't, then I start to worry. |
