Blodget Bears Bad Tidings for E-Tailers

Buy.com, eToys and Webvan are among Wednesday's victims.
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For e-tailers, bad things come in more than threes.

Already this week,

Pets.com

(IPET)

,

Furniture.com

and

Mothernature.com

(MTHR)

said they'd close their (virtual) doors. Then, on Wednesday,

Merrill Lynch

analyst Henry Blodget downgraded three other e-tailers,

Webvan

(WBVN)

,

eToys

(ETYS)

and

Buy.com

(BUYX)

, citing the incredibly difficult capital markets.

Blodget cut his ratings on the stocks (all Merrill banking clients) to neutral. Previously, he rated eToys intermediate-term neutral/long-term accumulate and rated Buy.com and Webvan both intermediate- and long-term accumulate.

He expects all three will have to raise additional money before breaking even, and in the current capital-constrained market, that might be difficult. Blodget estimates eToys has about three quarters of cash left before it needs to raise between $100 million and $150 million to fund operations as it crawls toward break-even. He estimates Webvan has between three and four quarters of cash left but needs another $80 million to $100 million to break even. And Buy.com likely has enough cash to reach break-even in 2002, but may need to raise "an unspecified amount of working capital," he said.

Raising money has been tough for consumer e-commerce companies since the spring's Nasdaq swoon. Every company in the entire sector, including industry biggie

Amazon.com

(AMZN) - Get Report

, has seen its shares fall amid questions about profitability and how big they can get.

Buy.com's shares fell 25 cents, or 13%, to $1.69. eToys' shares fell 78 cents, or 23%, to $2.56. Webvan's shares fell 28 cents, or 17%, to $1.41. Just to put those valuations in perspective, eToys still trades at more than two times trailing 12-month sales, compared to

Toys R Us

(TOY)

, which trades at 0.35 times sales. Webvan trades at nearly five times sales, compared to

Safeway's

(SWY)

price-to-sales ratio of 0.88.