According to a new report from Goldman Sachs, at least 10 key e-tailers will be faced with the daunting task of raising cash as soon as this year or next.
Among the companies identified by Goldman analyst Anthony Noto are Beyond.com (Nasdaq: BYND), Autoweb, Inc. and Peapod, Inc. (Nasdaq: PPOD).
Noto calculated the cash positions of 32 publicly traded online retailers by subtracting each company’s operating loss — or cash burn rate — in each quarter from the company’s first quarter cash position. “We estimate that 10 will need to raise money this year or early next year, which could prove challenging for some with unproven business models and lack of category leadership,” Noto wrote.
‘Pioneers’ Fare Well
Other companies, most notably Amazon.com (Nasdaq: AMZN) and Priceline.com (Nasdaq: PCLN), are “pioneers with proven business models,” and will not need to look to capital markets for funding, according to Noto. Priceline is on track to reach breakeven in this year’s fourth quarter, he said.
Seven of the 32 firms have sold securities to raise money this year, while others have cut spending to conserve cash in light of a downturn in e-commerce stock prices, Noto added.
The e-commerce sector has fallen out of favor amid skepticism about the likelihood of profits, and companies with huge cash-burn rates and no income have already started to fall by the wayside. “A continued shakeout will likely strengthen positions for leadership companies and decrease competitive clutter,” Noto said in his report.
Noto listed Barneandnoble.com (Nasdaq: BNBN), eBay, Inc. (Nasdaq: EBAY) and Ashford.com (Nasdaq: ASFD) among “first-tier” companies that have enough cash on hand to fund their expansion plans without tapping the markets. eBay, he noted, is currently the only profitable e-tailer.
Drugstore.com (Nasdaq: DSCM), HomeGrocer.com (Nasdaq: HOMG), Mothernature.com (Nasdaq: MTHR) and PlanetRx (Nasdaq: PLRX) all made Noto’s list of “second-tier” companies that will have to conserve cash this year and may need to seek financing as well.
Other e-tailers that may have difficulty staying in business, according to Noto, are Pets.com (Nasdaq: IPET), Autobytel.com (Nasdaq: ABTL) and Buy.com (Nasdaq: BUYX).
With investors becoming more selective about e-commerce securities, the companies are finding it harder to raise cash. Noto said companies in his second and third tier groups that need to raise capital this year “will have difficulty.”