Timing not best for e-tailer float

By KARYN SCHERER

A tiny Christchurch-based e-tailer is confident a changing mood towards internet stocks will not hurt its planned float on the stock exchange this month.

EstarOnline, the parent company of internet-based CD store CDstar, yesterday announced details of its public float, which is expected to see it list just after Easter.

The 18-month-old company raised an initial $1 million six months ago and aims to raise another $10 million by offering just under 17 million shares at 60c each.

It plans to spend the lion's share of investors' money on boosting its marketing.

But it admits its timing could have been better, internet stocks having plummeted in the United States in recent days following speculation that some e-tailers may already be close to hitting the wall.

Among prominent listed companies facing an uncertain future are online music giant CDNow, and Peapod, an online grocer.

Two audit reports issued last week have cast doubt on the ability of CDNow to stay in business, despite sales of more than $US147 million ($296 million) last year.

The company lost $US119 million over the year and is now looking for a buyer after a merger with Columbia House, a direct marketer backed by Sony and Time-Warner, was called off.

EstarOnline's chief executive, Matthew Darby, said yesterday that he was unconcerned by the panic selling in the US.

"It wasn't great timing, I have to admit, but I still also believe in CDNow as an operation," he said. "To go from $US2 million turnover in '95 to in excess of $US100 million last year - they've just got to look at their cost base."

CDstar launched in New Zealand a year ago, and expanded into Australia towards the end of last year. It had also hoped to move into Canada before Christmas, but is now aiming for later this year.

Its main New Zealand competitor is the Sounds music chain. In Australia, it is the biggest music e-tailer after Chaos Music.

According to information provided to potential investors, the company sold just $113,000 worth of CDs in the four months to the end of December, a period it admits is by far the busiest of the year.

But it is sticking to its prediction, made last October, that it will increase sales to $2.5 million for the year ending in August, and to $6.7 million for the year ending in March 2001.

The company lost $817,000 in the December quarter, a sum expected to snowball to just over $6 million by next March.

It has hinted at a joint venture with an Asian partner, and hopes to sell its own licensed software. It has also hinted that it intends to expand beyond selling music, but Mr Darby said he was wary of over-hyping its future.

"We're trying very hard not to blow our own trumpet too much or hype things up. We just want to get down to the business of selling CDs."

The company admits online sales account for less than 1 per cent of the $186 million market for music in New Zealand, but it is optimistic that will increase rapidly over the next few years.

Nevertheless, it does not expect to make a profit for several years.