Newegg’s IPO reveals the numbers behind A $2B Electronics Retailer | Hacker News Reader

Newegg’s IPO reveals the numbers behind A $2B Electronics Retailer

techcrunch.com

28 pointsdzlobin19 comments

Article raises a good question.

IPO --> pressure from shareholders to increase short term profits --> raise prices to increase margins --> slower growth + customers migrate to Amazon --> company plateaus, stock tanks (no longer a growth stock), but founders/early investors rich.

Any reason this is not going to happen?

"slower growth + customers migrate to Amazon"

Who is also a public company. You're trying to say that a public company will lose to another public company because it's public...

No -- given equal profit margins, a small volume retailer will usually lose out to a large volume retailer, since the larger company can buy in bulk and sell at a lower price. Assuming that Amazon's volume is greater than Newegg's, if they operate with equal profit margins, Newegg will probably lose to Amazon.

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edit: though I see from your comment above that they have automated warehouses, etc. So maybe they can raise margins and still beat larger competitors on price. I buy from Newegg all the time; it will be interesting to watch over the next few years.

Why is it universally assumed that corporate shareholders are incapable of looking at a big picture?

If there were such a systematic error in the market, then a smart investor could really make a killing by investing in the artificially-cheap stock of long-planning corporations.

And, of course, such an investor would have a very impressive history after a while, and be able to command quite a bit of money managing investments for others... which of course leads to greater sums of money being invested more intelligently.

The market fixes itself.

They need to move to Nevada like Zappo did to avoid incurring the exorbitant CA retail tax and electronics recycle fee. I often picked Amazon even if Newegg is slightly cheaper and faster in shipping.

I agree. Sales tax kills newegg for me though I prefer shopping their because there search is way better.

I was visiting folks in Washington by car for a holiday and I happened to be thinking about buying a comp at the same time. As a micro-optimization, I had Newegg ship the parts to WA and transported them back myself to CA. :)

Btw, I was surprised to find that even with premium parts, assembling a desktop yourself is cheaper unless you want the exact configs Dell etc sell.

I'm rooting for Newegg to succeed. I guess it's the Zappos for nerds. :)

"even with premium parts"? The more the components cost, the more you save building it yourself. Dell makes the most sense for cheaper machines.

Good point.

In case it wasn't clear, my premium-ish parts (e.g., 80plus power supply) were cheaper than Dell's low-end-ish parts.

I don't understand. Why does Newegg have to be as big as amazon? Is the IPO being done at a market capitalization near Amazon's?

Larger players tend to have a competitive advantage over smaller. This can be things like economies of scale or supplier bullying.

Having Amazon as a competitor will make it hard to make a buck, but if they do, they will clearly be a very strong operation.

I think staying private has helped them compete with Amazon up til now. Things like SOX compliance costs and disclosure requirements will add overhead.

1.4% margins. Yowza.

Last I heard, they were outsourcing their fulfillment to UPS. I suspect that means forfeiting a great deal of their possible margin.

I don't think so - I recall reading many articles on Newegg's novel fulfillment system (nearly fully automated warehouses). Sure, they do shipping through UPS, but which online retailer doesn't?

UPS does supply chain management. At one point, they were running the warehouse. Yeah, it looks like they don't anymore.

There are industries where 1.4% margins are acceptable(for example, supermarkets) and they might even be acceptable for computer parts, problem is that Amazon has ~5% margins.

Wow, uhh... I actually thought Amazon had acquired Newegg a long time ago and kept the stores separate because of the very different product and customer focuses or something...

Tells how much I was paying attention.

edit: OH, I was thinking of Egghead.

I heard from a friend recently that NewEgg came from EggHead from the Pre 2001 days, anyone know?

Newegg was never connected with EggHead; it was originally a subsidary of ABS.

For future reference, wikipedia is that way ---> http://en.wikipedia.org/wiki/Newegg#Name

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