HOMEGROCER.COM HAS LESS THAN EXPLOSIVE IPO

JON SPRINGER

KIRKLAND, Wash. -- HomeGrocer.com here raised its market capitalization to a total of $1.4 billion through a successful if unspectacular initial public offering.

Stock in the company was priced at the top of its range ($12) for its IPO, but after trading as high as $16 1/4 on its opening day, HomeGrocer closed up 18% at 14 1/8. The following day it fell 8% and closed at $13.

The results were far from the explosive debuts many Internet start-ups, including HomeGrocer rival Webvan, Foster City, Calif., which on its first day of trading in November saw its stock price soar from $15 to $26.

Analysts, however, told SN investors are now concerned about heavy competition among Internet grocers and have grown leery of business-to-consumer retailers in general. Webvan has lost $93 million since its inception and expects losses will accelerate as it expands to new markets, according to its stock prospectus.

"Investors are questioning when or if the on-line business-to-consumer companies are going to make money," said Ellen Baras, an equity analyst for William Blair & Co., Chicago. "They're more enamored of business-to-business right now."

Moreover, Baras said, food retailing is a "tough business" that probably won't support multiple players in every market.

HomeGrocer, which currently operates in Seattle, Portland, Ore., and Orange County, Calif., said it would use the proceeds of its IPO to fund a rollout into at least 12 new cities. Webvan is using proceeds from its IPO to fund a major expansion as well.

"While I think there will be a market for groceries over the Internet, I'm not convinced every market will be able to support three or four players," Baras said. "I think service will be the winning factor, but it's too early to tell who's going to be able to win."

Those concerns have depressed the stocks of all Internet grocers recently, said Kevin Hunt, an analyst at Thomas Weisel partners, San Francisco. Webvan, which went public last fall, has seen its stock slip from a high of $34 to as little at $10 in recent weeks. Streamline.com and Peapod are also struggling.

"I think it was a decent showing for HomeGrocer, especially considering the way the business-to-consumer plays are being looked at today," Hunt said. "They priced at the top of their range and they got their deal done. They now have nine months or a year until they'll need capital again."