Kozmo.com's Challenge: Turning the Last Mile Into the Green Mile
If you live in certain (fabulously lucky) metro areas and get an attack of the munchies, you can go to Kozmo.com and, within an hour, for a buck and change, receive a bag of Jelly Bellies via bicycle messenger.
As the company prepares to raise about $150 million in an IPO, it had better hope there are very few customers who take it up on that offer.
Kozmo's candy conundrum illustrates the central problem in the so-called last mile of e-commerce: While plenty of people love to get stuff at their homes or offices, it's awfully tough to make money delivering the goods unless you do a lot of sales. And recently, investors have shown little tolerance for the huge initial capital investments, and subsequent losses, that these companies produce.
Considering recent market conditions for similar e-commerce stocks, IPO watchers are skeptical that Kozmo's deal will be greeted with open wallets. Online grocers Webvan (WBVN) and HomeGrocer (HOMG) are both under water after their recent IPOs. And Peapod (PPOD) is searching for the cash it needs to avoid going under.
The Hard Sell"I don't think Kozmo.com is going to be that easy of a sell," says Vinnie Slavin, a sales trader who tracks IPOs for Cantor Fitzgerald. "It's a very big deal to give to a bunch of guys riding around on bicycles. It's a helluva valuation put on bicycle messengers." (He's not just being figurative; some messengers do get options.) Kozmo wasn't immediately available for comment.
|Company Profile |
|Estimated amount of offering||$150 million|
|Underwriters||Credit Suisse First Boston, Salomon Smith Barney, U.S. Bancorp Piper Jaffray|
|Revenue||$3.5 million (1999)|
|Net loss||$26.3 million (1999)|
|Average order size||$15|
|Cities of operation||New York City, Seattle, San Francisco, Boston, Washington, D.C. and Los Angeles|
|Source: Edgar Online, Jupiter Communications|
Bicycle RaceGeography is another question mark. Kozmo plans to expand beyond its existing NYC, Seattle, San Francisco, Boston, Washington, D.C., and Los Angeles markets into 10 more, and analysts say it will be interesting to see how demand -- and costs -- shake out. "Bikes are only feasible in New York City and a few other areas, and when you talk about cars, you're getting into much higher costs," says Darren Chervitz, senior analyst with the Jacob Internet Fund, which hasn't invested in any of the last-mile companies. A competitor, Urbanfetch, now operates only in New York, though it, too, is planning to expand (and go public, though it hasn't set a timeline). Urbanfetch says its average order is $50, thanks to a focus on higher-end items like Palm Pilots and gift certificates. (In a recent court dispute, now settled, Kozmo accused Urbanfetch of stealing its business model after posing as a potential investor.) To its credit, Kozmo has the backing of Amazon.com (AMZN), Chase Venture Capital Associates and Softbank. (Another Chase Manhattan (CMB) unit, Chase Capital Partners, and Softbank are investors in TheStreet.com (TSCM), publisher of this Web site.) And it has alliances with Starbucks (SBUX) (for video drop boxes) and Ticketmaster Online-CitySearch (TMCS).
Everything Must GoBut even brand-name support can't help a stock in an ailing sector. "It's a brutal market to go out now," says Tom Taulli, an IPO analyst with internet.com. "You look at Webvan and they've got a hot all-star team, lots of money -- and the stock is at distressed levels right now." Kozmo's IPO will hardly be the last word on the last-mile companies. This sector continues to attract new ventures: Food.com offers meal delivery and is testing a movie-delivery program with Blockbuster (BBI), while PurpleTie.com, a Bay Area start-up, plans to offer dry cleaning pick-up and delivery (plus environmentally safe cleaning techniques). And the online grocers continue to soldier on. But under current market conditions, investors are talking about the last-mile companies more like a particularly interesting science experiment rather than a stellar investment opportunity. And "interesting" and a buck fifty will get you a subway token. Or, if you prefer, a box of candy from Kozmo.
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