Updated from 3:07 p.m. EST

HomeGrocer.com

(HOMG:Nasdaq) climbed just 17% Friday after its initial public offering, highlighting weakness in the online retailing market.

Despite being backed by

Amazon.com

(AMZN) - Get Report

, which owns 28% of the shares, and a five-year $60 million marketing relationship with

America Online

(AOL)

, HomeGrocer.com saw its stock rise 2 1/8 to close at 14 1/8 Friday.

The Kirkland, Wash.-based company raised $264 million on the sale of 22 million shares at a price of $12.

Morgan Stanley Dean Witter

led the underwriting for HomeGrocer.com.

Its competitors for Internet grocery shoppers were looking for a spark that didn't come in the slumping sector.

Webvan

(WBVN)

shares fell 13/16, or 6%, to close at 11 13/16, while

Peapod's

(PPOD)

lost 31/64, or 5%, to close at 8 3/4.

"I think a lot of the e-tailers have had trouble lately," said Peter Swan, an analyst at

Pacific Growth Securities

. "Folks are looking at their business models." Swan does not cover HomeGrocer.com but rates rival Webvan a strong buy. His firm hasn't done underwriting for either company.

Webvan has lost more than 40% of its value since its IPO in November, while Peapod is up only slightly this year.

HomeGrocer.com delivers food primarily to customers around its distribution sites in Seattle, Portland, Ore., and Southern California but plans to expand to 20 more cities across the U.S.

Webvan, which operates in the San Francisco Bay area, and Peapod, with a wider Web of delivery for customers in nine major metropolitan areas, including San Francisco, have similar growth plans.

"The whole idea is scale in this business," Swan said. "They have to get up to scale first, in their operations, then they could undercut traditional grocers." He likes Webvan's business model for expansion better.

Webvan, Swan said, fills orders from one enormous fully automated distribution center in Oakland. They load a throng of trucks, which then rendezvous with smaller trucks until a van reaches the customer's house.

HomeGrocer.com operates more distribution centers with shorter shipping distances, a significant difference considering rising prices at the pump. "HomeGrocer.com is going to be able to sell a lot of stuff but their margins will be small," Swan said.

Though HomeGrocer.com does not have any immediate Internet competitors in its distribution areas, it will face more challenge as it expands into areas dominated by Peapod and Webvan.

"The online grocery space is very new but it makes sense from the consumer point of view," said Barry Stouffer, a

J.C. Bradford & Co.

analyst who said that his firm had an underwriting relationship with HomeGrocer.com. He rates Webvan a buy. He doesn't rate Peapod or HomeGrocer.com.