This story appeared today in our local newspaper in Charlottesville, VA, The Daily Progress. Here is the link: dailyprogress.com
By: COURTNEY MILLER
Daily Progress staff writer
Big money.
That prospect has prompted more than 25 Internet-related nationwide businesses this year alone to spin the stock market wheel. And the results have been of the jumping-and-screaming-while-hugging-the-game-show-host variety.
So-called dot-com companies raked in more than $4.3 billion in the first three months of this year by selling shares of stock — big money by anyone's standards.
Value America Inc., an Albemarle County-based Internet retailer, is expected to take the wheel for a spin Thursday. The company hopes to pull in at least $75 million from its initial public offering, but could head home with even millions more.
With its initial public offering looming, the company isn't commenting on its future. Federal regulations prohibit Value America officials from talking to the media until after the public stock offering has closed. With the selling date just days away, company officials have been especially tight-lipped.
However, market analysts, local interests and documents the company filed with the Securities and Exchange Commission connect a lot of the dots.
The company, which has lost $65.4 million dollars since its inception in 1996, said in its SEC filings that it needs the money to continue its extensive and costly advertising campaign. The overall success of Internet-related companies often depends not on the bottom line but on name recognition.
The stock of Amazon.com, one of the wildly successful Internet companies, has succeeded despite the company's continued operating losses, in part because of its popularity with consumers and its large market share.
Internet stocks have flourished despite unpredictable market conditions. When the stock market is up, Internet stocks usually are up. When the stock market is down, Internet stocks are often still up.
As of late, the stock market has inched past the 10,000-point mark on the Dow Jones Industrial Average. The continued upward progression of the market has helped quell Value America's uncertainties about going public. The company had intended to offer its stock to the public in September, but withdrew because of volatile market conditions.
Last week, three Internet-related companies offered shares of their companies to the public for the first time. The results were staggering. Shares of Priceline.com, which sells discount airline tickets online, sold for 436 percent of their initial price.
Value America will be the first Central Virginia company to try to cash in on the technology stock craze. A successful debut would mean not only more money for the company, but also increased attention for other area businesses.
Whether Value America joins the ranks of Dow Jones' nouveau riche depends on investor response to the company's bid to sell 5 million shares at an estimated price of between $15 and $17.
Investors will have an intriguing choice when the symbol VUSA drifts across computer screens for the first time. Value America is millions of dollars in the red so far, operating in a market that some analysts think could be short-lived.
But, at a time when millions of people do at least some of their shopping online, Internet-related stocks are making a fortune. And some very bright and very rich people, such as Microsoft co-founder and Value America investor Paul Allen, apparently think the company may have the right stuff.
A new world's order
Value America's principal founder, 44-year-old Craig A. Winn, brought two things with him when he moved from California to Albemarle in 1996 — his family and an idea for a store without walls, without inventory.
The company was born that year in a small office building on Commonwealth Drive, but didn't begin selling merchandise until late 1997. Winn has said he spent much of that first year developing relationships with companies such as IBM and Hewlett-Packard — companies that would become the backbone of sales on Value America's Web site.
Winn also put time into developing a computer system that would allow his online store to work efficiently and effectively. Unlike other retailers, Winn didn't intend to stock any inventory. He wanted transfer merchandise directly from the manufacturer to the consumer.
Value America entered the online sales market on tiptoes, but by the beginning of 1998, the company was stomping around like Paul Bunyan. By the end of that year, the company had spent more than $33 million on advertising and promotional expenses.
Value America had good reason to drop that kind of cash on full-page advertisements in the Wall Street Journal, the Washington Post and dozens of other newspapers. In the two years that Value America took to establish its presence, the market was flooded by companies offering similar services. The world of e-commerce had exploded.
Some companies, such as Amazon.com, primarily focused on selling just one product, but others — among them IQVC, OnSale and Wal-Mart Online — compete more directly with Value America by selling a variety of products.
Although Winn's company offers thousands of items at www.valueamerica.com — everything from fishing equipment to gourmet foods — most of the company's sales are of computer equipment. In 1998, goods manufactured by IBM represented about 58 percent of the company's sales and Hewlett-Packard products represented about 9 percent.
Value America touts its 1,000-brand offerings as a major selling point, but the company's other 998 brands made up just 33 percent, or $13.7 million, of the company's sales last year.
The company's reliance on brand-name products could be a weakness, according to some stock analysts. As the Internet becomes a more accepted tool to sell products, the companies could choose to skip the middleman and sell their products through their own Internet sites.
“I think Value America will probably do well for a couple of years,” said Drake Johnstone, a technology analyst with Davenport & Co. in Richmond. “But I think computer manufacturers, such as Compaq and IBM, are utilizing companies like Value America to gauge the market response to computers sold over the Internet.
“Eventually those companies will supplement their traditional retail outlets with their own Internet sites and terminate their contracts with companies like Value America.”
Stumbling blocks
In February, Compaq suspended sales of its Presario line of low-priced computers through companies that sell exclusively over the Internet, such as Value America. Instead, Compaq plans to sell the Presario line on its own Internet site, Johnstone said.
Value America has continued to sell other Compaq products, including computers designed for business use, and claims to have suffered no adverse affects.
The company's own brand name became a problem in March, when a Georgia company filed suit against Value America for trademark infringement.
Coupons Inc. claims it had been doing business using the Value America name and that it owns the right to use the moniker. Value America has said the suit has no merit and will not adversely affect its operations.
Technology could prove to be Value America's savior. Most analysts agree the Internet will be the place to do business in the coming years. And the fact that Value America has already established itself as a clearing house for many of the country's brand-name products makes it a prime candidate for success.
The audience of potential customers in the United States on the Internet now exceeds 60 million people and is growing at a rate close to 10 million every three months, according to data from the U.S. Department of Commerce.
In addition, estimates of the total value of goods and services purchased over the Internet by individuals, businesses and governmental agencies in 1998 range between $55 billion and $80 billion. Analysts predict the market may explode to between $1 trillion and $2 trillion by 2002.
That's the market Value America is tapping into. While competition is fierce, gaining even a small foothold could yield tremendous profit, said David Martin, president of Charlottesville-based Mosaic Technologies.
“The market they are going after is going to be huge, and even if they are 1 of 100 companies, splitting that pie still results in pretty big revenues,” he said.
Selling itself
Value America admits that, to become a real player, it needs to increase the number of overall sales and the number of sales actually done through its Internet site. Much of its current business is done through telephone orders.
So far, so good. Value America has been successful at attracting members to its online site. Nine months ago, the company had about 17,000 members; today it has more than 225,000.
The increase in membership — members receive discounts and the company more easily keeps track of purchases and preferences — nearly rivals the increase in Value America's work force. From January 1998 to March 1999, the number of full-time employees increased from 30 to 290. That 300 percent leap prompted the company to move from its one-building location to a five-building complex near the Hollymead subdivision in northern Albemarle.
Winn already has secured more than $120 million from private investors. That money has helped the company continue to grow and to make a name for itself in the crowded Internet commerce sector.
FedEx's founder, Frederick W. Smith, invested $5 million in Value America, as did his company. Allen has invested $65 million through his company, Vulcan Ventures.
Winn has won support from the venture capitalists. Next week, he'll find out what the general public thinks.
Sign of things to come?
Once it goes public, Value America will be among the handful of local public companies.
Nimbus CD International, a Greene County compact disc manufacturer, was bought by a British media conglomerate. Other publicly held companies in the area, such as ConAgra Frozen Foods, aren't headquartered in Central Virginia. Comdial Corp., one of the area's few locally headquartered public companies, is also one of Albemarle County's largest employers.
A successful IPO by Value America could spur investment in other Charlottesville-area technology companies and brand Central Virginia as a high-tech hotbed.
“I believe there is a great deal of interest in the community in seeing Value America succeed,” Mosaic Technologies' Martin said. “Whether that means they get all the money they are going for is impossible to say.”
The president of the Charlottesville Regional Chamber of Commerce, Jane Dittmar, credits Value America's advertising blitz for exposing the Charlottesville area to the nation.
“We are very well aware of Value America at the chamber and we think they are an incredible company,” she said. “They have brought a lot of new publicity to the Charlottesville area through their advertising.”
The company and the area could get a lot more publicity later this week, but whether it's positive or negative remains to be seen. Analysts are often baffled by the performance of initial public offerings, particularly those of Net-related stocks.
“Obviously,” Martin said, “the reason the market is fun is because you never know.”
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