A Dog of a Debut

Baldwin Louie — Mon, 28 Feb 2000 14:00:00 -0800

The Pets.com sock puppet may be cute, but the company's debut on the stock market has been downright scary.

After opening at $11 on Feb. 11, the stock dropped in its first three trading days to $7.75 - a stumble that has industry observers wondering whether the entire pets category is a dog.

Pets.com CEO Julie Wainwright argues that the poor performance is a matter of bad timing. "We came out on a bad day," she insists. "The IPO is not indicative of this category or our business."

It's true that investors have soured on consumer e-commerce stocks this year. But Pets.com didn't help matters when it revealed that for 1999 it had a gross-margin negative of 132 percent - meaning Pets.com spent $1.32 for every $1 in product it sold. In comparison, the erstwhile loss-leader king, Buy.com, operates at a gross margin of negative 0.9 percent.

Competitors are treating Pets.com as if it had rabies. "It's really in our best interest to distance ourselves from their offering," says Chris Luhnow, cofounder of Petstore.com. "They were premature in going out to the market."

Luhnow is convinced that the IPO has soiled the chances for anyone in the field to go public in the first half of the year. PetsMart.com, a venture backed in part by the eponymous 500-store chain, is next on deck after filing for a $115 million IPO on Feb. 4.

Phil Francis, chairman of PetsMart, says that with a PetsMart initial public offering looming he was "cheering for the Pets.com IPO." Though he's disappointed with the precedent, he says he's confident that, with the chain at his back, he'll fare better. "Who will be the PetsMart of the Internet?" he asks rhetorically. "I think it's PetsMart.com."

PetsMart and rival Petopia.com are joint ventures of the top two pet-supply chains in the country, PetsMart and PetCo, respectively. Meanwhile, Petstore's biggest backer is the Discovery (dossier) Channel, which gives it ample plugs on TV.

In the meantime, Pets.com is finding that "Spinning Wheel" - the Blood, Sweat and Tears ditty used in its commercials - has an unintentionally appropriate refrain. What goes up, must come down, indeed.

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A Dog of a Debut