Several weeks ago, when 1-800-FLOWERS.com (FLWS) was setting the stage for its IPO, it was supposed to be a slam dunk. The company had Goldman Sachs as its underwriter. The IPO was priced at $21, which was well above its price range of $16-$18.
Clearly, Goldman Sachs thought this IPO would be a moonshot. And so did just about every IPO analyst (including myself).
Then, on the day of the IPO, the market went cold and so did 1-800-FLOWERS.com. The IPO broke its offering price, falling to $18-3/16 on its first day of trading.
The press talked about how the IPO "wilted," "died on the vine," and so on
Well, 1-800-FLOWERS.com may get the last laugh.
1-800-FLOWERS.com is a company with a long history, starting as a flower shop in 1976. James McCann, the founder, grew his business into 14 retail locations by 1986. However, despite the growth, his company was not scaling.
There had to be a better way.
Then, he had the idea of building a nationwide flower service using a 1-800 number (he got the idea while listening to the radio as he was shaving). McCann
wrote about this is his engaging autobiography, "Stop and Sell the Roses."
Building-out this concept was no easy task, though. He had to create -- from scratch -- a sophisticated transaction processing infrastructure called BloomNet. The result was an electronic network of about 1,500 independent florists, in which products could be delivered on a same-day or next day basis.
In fact, the BloomNet infrastructure allowed 1-800-FLOWERS.com to transition easily into the online world, which actually happened in the early 1990s, when the company started selling flowers on AOL and CompuServe. Then, by April 1995, the company launched its e-commerce Web site. To promote it, 1-800-FLOWERS.com had the vision to sign distribution deals with Excite, AOL and MSN.
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Now, the site has 1,500 varieties of flowers, as well as 6,000 other SKUs, such as gifts, garden products and even gourmet foods.
Lets take a look at the valuation of the company.
1-800-FLOWERS.com |
FLWS |
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pro forma IPO |
|
| |
|
Shares offered |
6.00 |
Price target/actual |
$19.53 |
Proceeds |
$117.18 |
Shares out |
21.3 |
| |
|
IPO market cap |
$346.13 |
less working cap |
$171.10 |
less LTD |
14.3 |
Enterprise value |
$175.03 |
1999 Revenues |
$203.60 |
1999 Losses |
$8.60 |
Annualized rev. |
$272.00 |
| |
|
1-800-FLOWERS.com |
|
Revenue multiple |
1.27 |
Rev. multiple enterprise |
0.64 |
As you can see, the company is selling for one times total sales. Whats more, 45% of its market capitalization is in the form of cash.
Keep in mind: sales should grow strongly over the next few years, of course, led by the growth of online purchasing.
As of March, 1999, the company had 7.2 million customers, of which 2.7 million came in the past 12 months.
But there is more good news for 1-800-FLOWERS.com: Its arch nemesis, FTD.com
FTD.com, has indicated it is going to postpone its IPO.
Interestingly enough, the quiet period for 1-800-FLOWERS.com will expire at the end of this month. The quiet period prohibits management and the underwriters from making statements that hype the stock. But once it expires, it is common to see the underwriters initiate "buy" recommendations, which will likely put upward pressure on the stock.
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Stop and Sell These Roses?