interesting reading:
REUTERS) ANALYSIS-Letsbuyit.com--nice idea, shame about the cashflow
ANALYSIS-Letsbuyit.com--nice idea, shame about the cashflow
By Trevor Datson, European consumer goods correspondent
LONDON, Jan 5 (Reuters) - Fresh storm clouds gathered on
Friday over stricken Internet retailer Letsbuyit.com <LBUY.DE>
as the failure of a U.S. sector peer cast more doubts over the
debt-laden e-tailer's business model.
Although some industry experts have lauded Letsbuyit's twist
on e-business -- grouping would-be buyers of goods to increase
volumes and press down supplier prices -- it has proven no more
profitable than the stack 'em high, sell 'em cheap e-tailers.
The latest evidence of this came in the United States on
Thursday as Mercata Inc., backed by Microsoft <MSFT.O>
co-founder Paul Allen, shut up shop just a day after scrapping
plans for an initial public offering of its stock.
Mercata also used Letsbuyit's "aggregation model," but like
its still-solvent peer, failed to find sufficient backing to
tide it over until it could achieve the elusive goal of
returning a profit.
And hours after the Mercata announcement, online toystore
eToys Inc. <ETYS.O>, which is not an aggregate retailer, said it
would lay off 700 of its 1,000 workers after a dismal Christmas
season that shattered hopes of profitability any time soon.
"It's really a sector phenomenon. A lot of investors came to
us who said 'We love the results, love the business model, we
think your management is top rate, but we can't invest anything
in this space right now'," Mercata CEO Tom Van Horn said.
WHERE DID ALL OUR MONEY GO?
Mike Honor, analyst at consultants Forrester Research, had a
simpler diagnosis of the problem.
"It's the same thing we're seeing with all the dotcoms,
they're simply running out of cash. Letsbuyit seemed to have
more going for it than many other dotcoms. But they didn't seem
to be able to manage the costs, particularly the marketing."
Tight secrecy surrounded the German-listed Letsbuyit, whose
market value plunged below $10 million and which declined all
comment, channelling all communications through the Dutch
trustees administering the protection from creditors granted by
an Amsterdam court.
The trustees said only it was "unclear" whether they would
be breaking the silence on Friday as talks with a new management
team, appointed on Wednesday, continued with no sign of success.
Meanwhile, the value of the Letsbuyit share, listed on
Frankfurt's Neuer Markt, dwindled to just 0.43 euros, a fall of
20 percent on the day which brings the market capitalisation of
the company to just 7.7 million euros ($7.35 million) --
compared with a peak of 115 million euros just six months ago.
MORE GROWTH, MORE SPENDING
This latest share collapse may mark the endgame of the less
than illustrious bourse career of Letsbuyit, which is based in
Britain but incorporated in Amsterdam.
The company was floated in July, but even then the omens
were not good. The initial public offering was postponed twice
as market sentiment towards high-tech stocks soured, and when it
did go ahead the company raised just 66 million euros, half of
what it had hoped for.
Although sales growth has been spectacular -- 83 percent in
the second quarter of 2000, 28 percent in the third -- these are
about the only numbers that add up for the strugglig Letsbuyit.
At the end of September, it said it had cash reserves of 51
million euros -- not much, perhaps, but with a claimed cash burn
rate of seven million euros a month it would have sufficed to
keep the company afloat for six months or so.
Letsbuyit acknowleged the money was running out a month
later, announcing that it was planning to return to investors
for an 80 million euro lifeline that would keep it going until
its projected break-even in the fourth quarter of 2002.
Consequently, the company's announcement last Friday that it
had applied for protection from creditors came as a shock to the
market. A consultant said Letsbuyit's bank balance had dwindled
to 18 million euros, a figure the company refused to confirm.
The best bet for a rescue would now seem to be a trade sale,
as any pure financial investment in Letsbuyit would probably
carry such a risk premium as to be unaffordable.
And with an insufficiently robust business model, an
incredibly wary venture capital market and a lack of any real
tangible assets, any sort of rescue would seem highly unlikely,
Forrester's Mike Honor said.
"The only thing they could hope for is a saviour in the form
of a traditional retailer buying them out. But it's very
unlikely that they'd feel comfortable enough to spend the money.
I mean, what would they be buying?"
((European Equities Desk, +44-20-7542 7739 fax +44-20-7542
4722, trevor.datson@reuters.com)) |
