The once red-hot stock of online retailer EToys Inc. is suddenly looking like a lump of coal--even though EToys is enjoying its busiest shopping season.
The stock has plunged more than 50% in the last two months--wiping out $5.5 billion of the Santa Monica-based company's market value--just as the holiday shopping period has been gearing up. The stock has plunged despite the fact that EToys' business continues to grow sharply.
"There's no evidence to be any less optimistic about the company's operating prospects," said Jeff Siegel, an analyst at the investment firm Ormes Capital Markets in New York.
But investors are preoccupied by the fact that EToys, which went public in May, faces several more electronic-commerce rivals than it did a year ago, when the company virtually had a lock on selling toys via the Internet.
Major conventional retailers such as Toys R Us, KB Toys and Wal-Mart Stores Inc. now have online shopping sites, and online bookseller Amazon.com Inc.--the most-visited Web retailer in the nation--also started selling toys this year.
Toysrus.com, for instance, last month signed a two-year agreement with America Online Inc. to be a major source for toys on AOL's Shop@AOL Marketplace.
"EToys just faces a lot more competition," said analyst Stacie Leone of Media Metrix, which tracks user traffic on Internet sites.
There's another factor that has likely pressured the stock. Since Nov. 16, institutional investors and others who owned EToys shares before the public offering have been free to sell the stock in the open market. Many have, totaling several million shares.
And it hasn't helped EToys' stock that recent published reports have cited EToys, along with some other e-commerce sites, for aggravating consumers with shipping delays, merchandise shortages, slow service and other problems.
EToys' slump has come even as many online rivals' shares have recovered from a summer downturn. Amazon.com is up 26% in the last two months, for instance, while auction site EBay Inc. is up 11%.
EToys' stock slipped again Thursday, losing $2.13 to close at $39.94 a share on the Nasdaq Stock Market. That's still nearly double the $20-a-share price at which the stock went public May 20, but the stock had climbed as high as $86 a share in mid-October before heading lower. The last time EToys closed below $40 was Aug. 16.
