EToys Inc. has become the local poster child for dot-com failure.

As pundits around the country sought to examine and explain the recent crash in young, speculative tech stocks, Santa Monica-based eToys was perhaps the most frequently cited example of a one-time Wall Street darling whose future now looks dim.

Is there any hope for the plucky e-tailer?

"I don't think eToys is here to stay," said Seema Williams, senior analyst for Forrester Research Inc. in Cambridge, Mass. "I fought it for a long time, but their challenge is very heavy-duty competition offline, like Toys 'R' Us, which is growing very quickly."

Forrester Research recently released a report predicting that most dot-com retailers will be out of business by 2001. The loudest death knell was rung for companies like eToys.

"The plethora of merchants selling undifferentiated products at razor-thin margins including pet supplies, toys, and consumer electronics will collapse before marketing expenditures ramp up for the next holiday season," the Forrester report concludes.

One Internet analyst with a high-profile firm, who asked not to be identified, said he doesn't think eToys will last much past next Christmas. "They're gonna' run out of money; they only have enough cash through the end of the year," he said. "They have too much inventory on the balance sheet because they bought too much inventory in (the fourth quarter). I think the answer is, the (stock) price does reflect how they're doing. Yeah, sales are strong, but who cares what the sales are?"

Promising beginnings

EToys was created in 1996 by former Walt Disney Co. executive Toby Lenk and Idealab founder Bill Gross. Lenk remains president, CEO and "uncle of the board."

The company is the largest Internet retailer of children's products, with $30 million in sales in 1999. But its stock plunged to $4.75 on April 17, before inching up to $6 on April 20. That's more than a 90 percent drop from its high of $84.25 on Oct. 11, 1999.

The company went public last May and the stock shot up from its offer price of $20, closing on its first day of trading at $76.56. It was the biggest debut for a Los Angeles IPO ever, finishing its first day of trading with a market value of $7.8 billion.

The stock fell during the Christmas rush, when eToys had trouble filling orders and resorted to having a third party fulfill some shipments. During the all-important holiday season, the company was plagued by reports of shipping delays, merchandise shortages and slow service.

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