Newegg Files For IPO

The company is looking to raise up to $175 million in capital, according to the filing, but an initial pricing per share is not listed in the S-1 document.

Newegg intends to spend approximately $25 million to expand its international operations, which includes the construction of an Asian headquarters and regional warehouse and the improvement of logistics infrastructure in its Canadian operations.

In addition, about $8.6 million would be used to repay two current loans. The balance would be used for "working capital and general corporate purposes," according to the filing.

The investments would include IT and logistics infrastructure improvements, additional facilities and equipment and the creation of a redundant IT infrastructure. They would also include efforts to increase market share through product and shipping promotional activities, branding campaigns and third-party e-commerce fulfillment and marketing service platforms, according to the filing.

Finally, Newegg may use a portion of the IPO capital to acquire or invest in other companies.

International expansion is a big focus for Newegg, according to the filing. Its sales outside the U.S. have increased from 0.6 percent in 2006 to 5.6 percent in the first half of 2009.

"Our key strategic initiatives include growing our online retail operations in China, expanding our sales to small and medium-sized businesses, growing our online retail operations in Canada and applying our e-commerce platform to other product categories," wrote the company in the filing.

In the document, Newegg lays out its financial history dating back to 2004. Last year, it reported $21.5 million in earnings, about 1 percent margin for its $2.11 billion in sales.

Newegg's sales have grown each year, with a 16.4 percent compounded annual growth rate (CAGR) since 2004. Through the first six months of 2009, Newegg has generated $1.11 million in sales, up 7 percent compared with the same period in 2008.

Newegg's earnings have climbed each year, too. Through the first two quarters, Newegg earned $11.9 million, up 25 percent through the same period last year.

Through the years, Newegg has gained a reputation as a price leader in the market, and VARs have increasingly looked to source products from the company because they can get cheaper pricing than through distribution.

Glen Coffield, president of Cheap Guys Computers, a system builder in Orlando, Fla., said it will be interesting to see if Newegg can continue to come in below his price from distributors in some cases once the company is beholden to Wall Street investors.

"It's a double-edged sword. One of the things I saw when Synnex went public was their pricing model had to change. They got more expensive," Coffield said.

This year, despite the recession, Newegg has seen a dramatic rise (39.3 percent) in the number of visits to its U.S. Web site through the first six months of 2009, compared with the same period last year, which has resulted in a 26 percent increase in the number of active customers. During those periods, the average order has fallen to $183 this year, compared with $212 last year.

"The decrease in average order value was a result of competitive pricing in the marketplace, decreases in the average selling price of certain IT components including memory, CPUs and laptops, and a slight decrease in the number of items per order. We expect these trends to fluctuate over time," Newegg wrote in the IPO filing.

In its third fiscal quarter this year, the company launched www.biz.newegg.com, a Web site focused on small and medium-size businesses.

The company expects continued growth in the IT and consumer electronics markets, due in part to the upcoming release of Microsoft's Windows 7 operating system, according to the filing.

"The release of Windows 7 by Microsoft may drive increased sales of new software applications and hardware components and peripherals as enterprises and consumers upgrade their personal computers, or PCs, to take advantage of the enhanced usability and capabilities of Windows 7," the company wrote. "We believe IT spending is poised to rebound after the current recession ends as small and medium-sized businesses, who already constitute a significant portion of the market for IT products, increase IT spending levels to enhance their competitive positioning and improve business productivity."