Newegg hatches IPO

A new rooster in the IT parts henhouse

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In a sign that maybe the economy is turning around, Newegg, which has grown to be the second-largest online-only retailer in the United States and one with a specialty in IT parts and consumer electronics, is going public.

Newegg was founded in 2001, and is aptly enough located in Industry, California. The company distributes over 30,000 products, has 12.6 million customers (about 4.1 million of them are active currently), and is known for decent prices and fast shipping among techies who build their own PCs and servers or who want software licenses for boxes or various electronic gadgets.

But here's the thing that is probably the most exciting bit of news about Newegg as far as the IT channel is concerned: the company has grown very fast and steadily, and has done so profitably. And not only that, profits at Newegg are growing considerably faster than sales, even during the economic meltdown.

When's the last time that happened with an IT-related IPO? Google?

The way the Securities and Exchange Commission S-1 forms work, companies filing to go public do not have to give their entire financial history to the prospective stock buyers they are trying to peddle the company to, but rather the prior five full years. They often have comparisons for the more recent quarters as well, which is the case in the Newegg S-1 filing, which you can read here.

In 2004, as we were still coming out of the recession from the dot-com bust, Newegg posted sales of $982.1m and brought $2.4m to the bottom line. The company had a big growth spurt in 2005, with sales up 27.9 per cent to $1.26bn, but it had to redeem some preferred shares and incur expansion costs, which dropped net earnings to $874,000. (Excluding this stock redemption, net income was only down by 26.6 per cent to $1.76m.)

In 2006, sales rose by 16.9 per cent to $1.47bn, and net income exploded by a factor of seven to $12.6m, and the following year, revenues at Newegg shot up by 26.9 per cent to $1.86bn and net income rose by 47.9 per cent to $18.6m. Last year, sales growth was muted, as you would expect based on the recession in the United States that started in December 2007, but sales at Newegg nonetheless rose by 13.2 per cent to $2.11bn, and more importantly for the Wall Street crowd, net income continued to go up, in this case by 54.6 per cent to $28.8m.

In the first half of 2009, Newegg has only seen a 7.4 per cent sales bump, to $1.1bn, but it has managed to extract more profits out of the company nonetheless, with net income up 23.4 percent to $16.1m. As the second quarter ended in June, Newegg had $42.2m in cash and equivalents, $26.1m in accounts receivable, $155m in inventories, and $12.9m in long-term debt.

Newegg has most of its operations in the United States, but has had operations in China since 2001 and in Canada since 2008. The initial public offering proposed by Newegg and underwritten by JP Morgan Chase and Bank of America/Merrill Lynch is expected to raise approximately $175m, which the company will use to expand its operations in the Asia/Pacific region and to pay off debts. ®


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