eToys.com: A $76 First-Day Close, the Toy War and a $5 Million Sale

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eToys launched on November 3, 1997 out of the incubator Idealab at the height of the dot-com boom. Its IPO on January 4, 1999 priced shares at $20, and the stock closed its first day at $76; eMarketer called it the benchmark for all toy sites. The valuation rested on growth rather than profits, and the business had to warehouse and ship bulky, irregular items like doll houses and race tracks. The company subsidized shipping and ran heavy TV advertising to buy market share. In 1999 it went after the Swiss art collective etoy and its etoy.com domain, claiming trademark confusion, and online activists answered with the Toy War, including denial of service protests during the holiday season, until eToys dropped the case.

By March 2001 the Wall Street Journal reported KB Toys was buying most of eToys' remaining assets for $5 million, and the company went bankrupt on April 1, 2001. In the Chapter 11 case, creditors' attorney Paul Traub had formed Asset Disposition Advisors with Barry Gold, who was then named eToys' CEO to run the liquidation. Creditors complained about the undisclosed tie, but a judge found no legal fault. The brand later passed from KB Toys to the hedge fund D.E. Shaw, whose eToys Direct reopened the site and mailed paper catalogs. Its parent filed for Chapter 11 in December 2008, and Toys "R" Us bought the eToys.com domain in February 2009.

• The stock nearly quadrupled in its first day of trading.
• Activists also bought ad space and pushed down eToys' ratings on consumer review sites during the Toy War.
• The dot-com crash turned eToys' warehouses of unsold inventory into liabilities.
• Chapter 11 rules require parties to disclose conflicts, and the Traub and Gold link ran through a separate LLC.
• The episode argues buyers kept paying for the domain for its built-in traffic and search value.