Buy.com is an e-commerce company focused on providing technology and entertainment related retail goods at competitive prices. The website www.buy.com provides product description and real time information about product availability and order status. Approximately 2 million products are offered by company, which include consumer electronics, computer hardware and software, cell phones, books, music, video, games, digital music downloads, toys and sporting goods. The company operates at a lower cost than that of competitors by outsourcing most of its operating infrastructure, including distribution, fulfillment and first-level customer service and support. The website was launched in 1997 and since then more than 7 million unique customers have purchased from Buy.com. In the last fiscal more than 50% of the revenues were generated from repeat customers. The company operates in a growth industry but one, which is also very competitive.

Financials

Buy.com had clocked revenues of 290.8 million USD for the year ended 2004. The company earned a gross profit of USD 29.7 million, which translates into a margin of 10.2%. After incorporating the operating expenses there comes to be an Operating Loss of USD 13.34 million which is in fact the lowest in the last five years. The company has been making losses in the last five years also and this was as high as USD 120 million in the year ended 2000. After incorporating the interest and other charges the net loss per share comes out to be 1.05 dollars per share. For the nine months ended September 2005 the company has already clocked in a revenue of 233.99 million USD but has again incurred a net loss of USD 8.5 million as compared to a net loss of 15.38 million USD for the entire year last year.
There is an accumulated deficit of $418.1 million and negative stockholders’ equity of $18.0 million as of September 30, 2005. In addition, Buy.com is currently dependent on the personal guarantees provided by principal stockholder to certain distributors and credit card processor in order to secure the continuation of their services. As of September 30, 2005, the principal stockholder had provided, guarantees totaling an aggregate of up to $27.9 million. The online marketplace is slated to become even more competitive going forward and this in turn will put greater pressure on Buy.com to increase their price competitiveness while keeping the profit margins intact and enhanced.

Conclusion

The competitive online retail market has so far not allowed the company to generate positive income and since this market is expected to be more competitive in the future their will be a lot of pressure on margins going forward and it will be increasingly difficult to go into the green. The company in the past has been in an uncomfortable situation where the more it sold the greater the losses were. There has to be a concentrated and focused effort on reducing its operating expense to such an extent that profits start accruing because due to the competitive nature of the business Buy.com does not have an option of increasing the prices of the goods that it sells.