BIG WEBVAN IPO ATTRACTS ATTENTION

DAVID GHITELMAN

FOSTER CITY, Calif. -- Webvan here was last week's Wall Street darling, with its initial public offering giving quick profits to early investors.

But some supermarket industry analysts expressed skepticism about the company's long term prospects. They said they doubted whether grocery e-commerce would find favor beyond a small niche market. What's more, they said even if grocery e-retailing does start attracting a broad range of shoppers, the large supermarket companies will not let the Internet upstarts capture a large enough market share to turn a profit.

Webvan declined to be interviewed for this story. The company was observing the customary period of silence imposed by the Securities and Exchange Commission before and after IPOs.

At the request of the SEC, Webvan had postponed its IPO, originally scheduled for Oct. 17, reportedly because of remarks company officials made to the press and to institutional investors that disclosed information not in the company's prospectus.

Webvan made its IPO of 25 million shares at $15 per share late Nov. 4, and the stock started trading the next day at $26 on the Nasdaq National Market. The stock closed late last week at just under $22.

Webvan only started selling groceries in the spring, and still only sells them in the San Francisco metro area. The company said in the offering statement it filed with the SEC that it plans to use money from the IPO to build as many as 26 distribution centers across the country.

Some supermarket analysts remain unimpressed.

Jonathan Ziegler, San Francisco-based analyst, Deutsche Bank/Alex Brown, New York, called the avidness of investors to buy shares of e-commerce companies "a mania."

Webvan "is really fine and going to work if they don't have to make any money," he said. "I hear great word of mouth about Webvan," he added. "They've got good word of mouth and good pricing. The question is, 'How do they make money?' "

Chuck Cerankosky, security analyst with McDonald & Co., Cleveland, Ohio, asked, "The big question is, 'Are any of these companies going to make money?' "

"The indications so far suggest they've still got a lot of work that needs to be done," he said.

Ziegler said he had recently worked out an economic model for a hypothetical Internet food retailer. "The company would have to achieve a 15% market share in a metro area," he said. "I don't think the big supermarket companies will let them take that much.

"If they get a 10% market share in San Francisco, you don't think Safeway is going to notice that? I don't know what they'll do, but they'll do something."