Dow Jones Interactive

BUSINESS
NO IPO GREENMOUNTAIN.COM UNABLE TO SELL ITSELF AS WEB POWERHOUSE
KEN ZAPINSKI, POST-GAZETTE STAFF WRITER

08/29/1999
Pittsburgh Post-Gazette
TWO STAR
F-3
(Copyright 1999)

Some days it may seem like any company with a Web site can slap dot.com on the end of its name and cash in big on an initial public offering.

Don't try telling that to the folks at GreenMountain.com.

The company burst onto the Pennsylvania scene a year ago, pitching its environmentally friendly electricity to customers able to choose their power supplier for the first time. The company laid an eco- guilt trip on consumers, pushing a premium-priced brand of power that didn't come from smoke-belching coal plants or radioactive nuclear reactors.

And the strategy worked. Green Mountain Energy, as the company called itself at the time, became the most recognized name in Pennsylvania's competitive electric market. It captured roughly three out of every 10 customers who switched suppliers.

Then the Vermont-based company changed direction.

It dot.com-ed its name and tried to go public in June as an Internet company. GreenMountain.com would be a major Web gateway where customers would gather to share thoughts about the environment - and purchase a host of "green" products such as electric bicycles. The company even trademarked a new term: g*commerce.

Wall Street wasn't buying, neither the story nor the stock.

The original plan to sell about $300 million in stock was subsequently cut back to $100 million. The company pulled back all together just before the stock was to begin trading on the Nasdaq in late June.

Jeb Hensarling, speaking for the company, said the stock offering was delayed primarily because the market was buffeting IPOs and said the company will go back to the stock market when conditions improve. But, he acknowledged, the investment community believed "we were early in our life cycle to be asking for this much money."

Ethan Cohen, an analyst with the Yankee Group, was more blunt. "Even though it had a dot.com name, it wasn't a true kind of Internet company," he said. "There was some question about whether this was a fast-buck play." In other words, he said, whether GreenMountain.com and its primary investor, the Wyly family, were "just making a green play in the true sense of the word."

Hensarling denied that. He said the Dallas family of computer entrepreneurs who have funneled more than $70 million into GreenMountain.com over the past two years, are committed to the company.

It is a company in turmoil. About a dozen workers - or about 15 percent of the staff - were laid off after the failed IPO. It is on its third chief executive officer in less than a year. And its future plans for the Web are muddled at best.

GreenMountain.com's filings with the Securities and Exchange Commission in connection with its IPO outlined an ambitious Web strategy complete with all the buzzwords. The company would use its "first-mover momentum to offer a wide variety of green consumer products over the Internet." It would create "an online community that fosters and supports g*commerce" with features like chat forums, personal home pages and eco-greeting cards.

That was then, this is now.

"{T}he company's focus has dramatically changed to focus on our core business, which is our energy business," according to Ann Ryan, GreenMountain.com's media relations manager. "The prospectus focuses more on a strategy we pursued earlier."

Or not.

"You're trying to get me to say that we've turned our back on parts of the Internet strategy and that's not the case...We have not changed our strategy," said Hensarling, a spokesman for the Wylys' various investment interests.

Just changing a company's name to link it with the Internet can supercharge a company's stock, according to a new study by Purdue University researchers. In "A Rose.com by Any Other Name," assistant finance professors Michael Cooper and Raghavendra Rau studied all 63 publicly traded companies that changed their names in 1998 and early 1999 to include ".com," ".net" or "Internet." Filtering out gains that could be attributed to changes to business conditions - like a positive earnings report - the researchers found the average stock went up 125 percent from the week before the name change to the week after.

"It seems that a mere association with the Internet is enough to provide a firm with a large and permanent value increase," the researchers wrote.

GreenMountain.com had at least one thing in common with most Internet startups: huge losses. Between Jan. 1, 1998, and March 31, 1999, it racked up $65.8 million in losses, according to its prospectus, mostly from trying to build the Green Mountain brand.

But it appeared to have little else in common with a Web portal like Yahoo! or Lycos. Just one of every 25 customers who chose Green Mountain power signed up via the Internet. The company had accumulated a deficit of $79.7 million but did not yet have a suitably sophisticated Web site. Nor would it, the company told investors, until October.

"Let me emphasize that the core business is still an energy business," Hensarling said in an interview last week. "But we think that a vital part of this is to develop the Internet side."

GreenMountain.com has done well in its energy venture. At the end of the first quarter, about 48,100 Pennsylvania customers had signed up for its premium-priced power, giving the company a 29 percent share of all customers who switched suppliers. The company was also serving 19,900 customers in California. And it just signed Birkenstock Footprint Sandals Inc. in Marin County, Calif., as its first large-scale commercial customer.

But price competition in Pennsylvania is squeezing the company's margins. Last year, the company sold Green Mountain power to customers for nearly 40 percent more than it paid. This year, the markup has dropped to 34 percent. "It's not a cause for concern," Hensarling said.

Cohen, the Yankee Group analyst, said GreenMountain.com is on the right track, trying to use the convenience of the Internet to sell power in deregulated markets. "I don't think in the long run it is going to be a miserable failure."