| ChaosMusic suffers the
scorn of doubtful investors |
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17-Mar-2000 |
With the world-wide slump in
business-to-consumer Internet stock prices, it is
prudent for any e-investor out there to think seriously
about where the money is going to be headed in the near
future.
In the US there are approximately 400
publicly traded Web stocks, together worth something in
the order of $1 trillion, or around 5% of the total
capitalisation of all US stocks. Merrill Lynch's Henry
Blodget said that Merrills estimates the value of
pure-Internet stocks to rise to $2-$3 trillion over the
next few years. However, they are also expecting a
shakeout in the business-to-consumer Internet sector
which should see market leaders such as Yahoo!, America
Online and Amazon.com emerge stronger and leaner –
and of course leave the bottom-to-mid end of the market
remembering the good old days when valuations were based
on the magnitude of your share price - “Really? 20
cents…gee that’s cheap. We had better buy
some then!”
So what does this mean for a
small music e-tailer like ChaosMusic?
It could
possibly mean that the stock is placed in that dark spot
in venture capitalist’s portfolios – the
section of the venture capital portfolio where investors
expect to see their investment go to
zero.
ChaosMusic issued 16.6 million shares late
last year at $1.40 through a book-build process. It
opened on the ASX at $1.50 and hit a high of $1.57.
Since then however, the stock price has failed to make
any headway. It fell to a low of 71 cents, mid-last
month but has since recovered to trade just above the
$1.00 mark.
Over the six month period from July 1
to December 31 1999, the e-tailer recorded online
revenues of approximately $1.2 million, up 757% from the
previous six months, whilst membership numbers increased
from 8,500 to about 31,700, or approximately
350%.
Whilst these percentage figures sound
impressive, remember, we’re talking about a
startup Internet retailer, with revenue figures that
have nowhere to go but up. It’s not like they have
no competition either…both from bricks-and-mortar
retailers and other e-tailers such as sanity, estore,
and a host of smaller Internet retailers which one can
find easily with a few clicks of the mouse on
Looksmart’s search engine.
And
they’re just the local Aussie stores. What about
the American and UK online music stores who are able to
offer a wider selection of new music at roughly the same
price even after postage is included? Not to mention the
fact that all the online stores, not just Chaos, must be
shaking with fear in anticipation of Coles Myer’s
full-fledged entry into the online retailing
fray.
It might be that ChaosMusic will be able to
achieve its future strategy quickly and ensure itself an
ongoing position on the bookmarks of many young
Australians. In its prospectus, the group said that it
was aiming to maintain chaosmusic.com as a leading
Australian retail Website around which a network of
specialist music Websites will be
developed.
However, in the midst of growing
concern about the valuations put on pure Internet b-to-c
companies, it seems investors have become nervous about
the prospects of ChaosMusic. Maybe it’s just a
matter of time before…
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