eToys has warned investors its stock is ‘worthless’.
US eRetailer eToys has finally thrown in the towel. It has stated that its stock, which gave it a market capitalization of $8 billion on flotation in 1999, is ‘worthless’ and it will close its website on March 8 and then sell off all its remaining assets to pay back some of its debts.
It’s no surprise. Whilst investors were hopeful eToys would find a buyer, after a few rumors last month interest evaporated. The firm was losing $75 million a quarter before it laid off the majority of its staff – and that move didn’t cut losses by enough. But eToys’ problem was worse than just the cashflow difficulties many dotcoms have been suffering from – it was also losing ground to its bricks-and-clicks rivals.
The killer blow was Toys R Us’ move into eRetailing last year in alliance with Amazon. Suddenly, eToys faced opposition from the leading traditional toy seller and from a leading eRetailer. Such alliances have a strong competitive advantage over pureplays in that customer acquisition costs are lower, they already have high mindshare and are present in a multi-channel environment building upon brand loyalty.
Recently, the hope was for a strategic partnership with an offline player, to salvage something for shareholders. The suitors would have been firms looking to move into B2C eCommerce that had not yet rolled out sites as well known as eToys. Wal-Mart was a possibility, but the firm clearly decided eToys’ customer and technology base was not worth its $247 million in liabilities. After all, following boo.com’s liquidation, Fashionmall paid less than $1 million for its brand and customer base, whilst its advanced technology was sold for even less.
It’s quite possible that like boo, the eToys name will not disappear – it’s also quite possible that the technology will find a buyer. Many of the names considered as strategic partners, such as Wal-Mart and also toymakers like Disney and Mattel, could be interested in such a deal. However, none will pay anything like $247 million.
