Egghead.com's Shares Double After Move to Internet (Repeat)
(Repeats story from yesterday.)
Spokane, Washington, March 10 (Bloomberg) -- Egghead.com Inc.
shares almost doubled in six weeks amid optimism that its move to
sell exclusively on the Internet and team up with Yahoo! Inc. and
other popular Web sites will boost revenue down the road.
Egghead, which sells software, computers and office
equipment, said in January it will shutter its 80 stores to stem
mounting losses. Since then, its online sales are running at more
than $2 million a week, twice the pace in January.
Investors are betting that Egghead -- minus its real-world
real estate -- will be a stronger competitor albeit a smaller
one. In Egghead's favor are its well-known brand name, a revived
appetite for Internet stocks and a market for online sales that
some analysts expect will reach $213 billion in 2002.
''It all comes down to a brand new industry that's taking
off,'' said Starr Securities analyst Casey Stern, who has a
''buy'' recommendation on Egghead.
Spokane, Washington-based Egghead rose 13/16 to a 21-month
high of 12 3/16. When it unveiled its new strategy on Jan. 28,
shares were trading at 6 3/8.
Still, the company hasn't done much for investors in recent
years. Its shares have dropped 34 percent during the past five
years as sales tumbled amid competition from stores like CompUSA
Inc. During that time, the technology-laden Nasdaq Composite
Index more than doubled.
Virtual Sales
Egghead's future isn't assured.
Even the most well-known online stores don't have revenue
close to brick-and-mortar retailers'. No. 1 online bookseller
Amazon.com Inc., for instance, had sales of $147.8 million in
1997. That compares with Barnes & Noble Inc.'s $2.45 billion last
year, $14 million of which came from its Internet site.
The same is true for Egghead. It had sales of $361 million
in fiscal 1997 when its stores were open. The company could
report online sales of about $110 million in the fiscal year that
ends in March 1999, its first full year as an Internet-only
retailer, analyst Stern said.
Egghead expects to save about $38 million a year from the
store closings and will spend as much as $9 million on
marketing. It is selling its products through its own Web site
and via marketing agreements with Internet directory Yahoo!,
Cnet Inc., a Web-based news and information service, and USA.Net,
which provides free electronic mail over the Web.
Egghead is betting on an increase in Internet retailing,
where sales are expected to rise steadily from last year's $6.7
billion, according to International Data Corp. Further, more than
30 percent of consumer software, totaling $2.3 billion, will be
sold over the Net by 2002, according to Jupiter Communications, a
technology research firm.
''Going online only gives Egghead the flexibility and focus
to become a strength in the market,'' said Jupiter's Nicole
Vanderbilt.
Bargain?
At least one investor now views Egghead as a bargain.
''The stock is much, much cheaper than most Web-based
companies,'' said David Rocker of Rocker Partners LP, which
owned about 1.3 million shares at the end of the year, according
to regulatory filings.
Egghead is trading at a price that's about twice the per-
share book value of the company, while Amazon.com trades at about
53 times its book value, Rocker said.
Investors have been snapping up Amazon, Yahoo, Excite Inc.
and other Internet companies, sending their shares to record
highs this week.
The Internet enthusiasm comes as Compaq Computer Corp. Intel
Corp. and Motorola Inc. all warned that first-quarter profit will
be lower than expected. Internet companies aren't facing the slow
Asian sales and excess inventory that are hurting computer and
chip companies.
With market reaction to Egghead's store closings so
positive, some wonder why it took so long to make the move.
''I would have liked them to do it sooner,'' Stern said.
The company, which began its Web site in February 1996, said
it needed to test the waters.
It saw potential in its Web sales about a year ago, said
Egghead spokesman John Hough. It also wanted to give the stores a
last shot, especially over the holidays, he said. |
