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Cramer Weeds the Tech Garden

The wilting of Garden Botanika offers a cautionary tale of IPO hype.
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The IPO sizzled, the stock took off like a rocket. It finished up 62% the first day. Everybody went home high-fiving, talking about fantastic hypergrowth and scalable, world-class prospects.

The next e-commerce play? A possible successor to



? An e-tailer category killer?

How about

Garden Botanika


? Yes, it's time to focus on the downside for a second, to remember what other manias feel like, to get a dose of the reality that businesses eventually do have to make money and become something other than fast revenue movers.

While everyone was focused on the incredibly exciting merger of



and GeoCities Thursday, and others were marveling about the strong


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results, I spied this story on the tape: "Redmond, Wash. Jan. 28, 1999 -- Garden Botanika today announced that it has been notified by the

Nasdaq National Stock Market

that the Company's securities will cease trading on the National Market effective prior to the opening of the market on Monday, February 1, 1999."

Where I come from, that's an obit, a simple death notice dished out by Nasdaq for companies that don't meet the exchange's generous listing requirements. Garden Botanika's going to the Potters Field of the

OTC Bulletin Board

, an ignominious graveyard.

Yet less than three years ago GBOT, as everyone called it, was the toast of the Street. Its execs hailed from


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Eddie Bauer

. Its growth was supersonic. "Small-cap fund managers love these small theme-based retailers," David Pearl, manager of a Citibank small-cap fund, was quoted as saying to


the day GBOT launched. "People go nuts anytime they see growth in retail."

There was only one problem. The quarter after GBOT went public, there was no growth in retail, with same-store sales well below plan. "The quarter also contained significant disappointments especially relative to comparable store sales," said Michael Luce, GBOT's president, at the time. "The 2% increase in the quarter was below our expectations, and the apparent trade-off of sales between existing and new product lines was disappointing."

Brutal. The stock sank from the 20s to the tens and then never blipped back up. In fact, the highest this stock ever traded was on its first day of trading, when it momentarily hit 35.

Could you have spotted GBOT as a disaster? The analysts sure didn't. One month after GBOT went public, the analysts who followed it diligently started with buys. Someone using the

Peter Lynch

method sure couldn't have spotted it. The stores looked clean, neat and crowded. Their execution had been flawless before the IPO.

In fact, the only thing that really signaled problems was the rapid descent from the opening pop back down to the deal price, but that's not entirely unusual and would have been but a small yellow flag for the IPO cognoscenti.

If you didn't spot the weeding of Garden Botanika, what can you learn from it? Is this a useless exercise? Hardly. It is a reminder that not everyone can execute; not everything works. Stocks can go to zero. And when they do, it hurts. For most of the newer traders, stories like this are an exercise in vicarious angst. But not for me.

I owned GBOT. I sold it, but not until after I took a beating. The reason I owned it? Because high-growth specialty retail was working, and even then I was a member of the Church of What's Working Now. Something to think about.

Random musings:

Another incredible session where money got thrown at tech. Funny, but one of the big knocks on



by the bears was its lack of access from cable and its inability to crack into the home-cable pipe. Yet there's the big ruling from the


and it goes against AOL and the stock flies up anyway.

I was mistakenly grabbing a Diet Coke when news came out about


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3-for-1 split. I would have jumped for that, which is fully 50% better than a 2-for-1. (LOL)

Second day goes by and my friends at

The Wall Street Journal

have not indicated whether they will run my riposte to the attack by that


guy. He sure made it sound like I was shorting



, even though it has been verified, stipulated, absolutely, positively and reliably that I WAS NEVER SHORT WAVEPHORE.

Dead-tree ethics, rule No. 1: We are the press. We are beholden to no one. We don't have to answer to anyone because hey, that's what the press is all about. Don't mess with us. We can embarrass you at will and whim. You gotta love that

First Amendment

, as if it had anything to do with the right to assassinate character without mercy.

James J. Cramer is manager of a hedge fund and co-founder of At the time of publication, the fund was long AOL and had no positions in Wavephore, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column by sending an email to