Hollydazzle Essay

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Hollydazzle.com Case Memo Group 3- Brian Martin, Mike Benz, Yaohua Chung, Yuyang Xie 1. Assume it is 1999. Would you invest in Hollydazzle? If so, under what conditions? Support your position. Much interest has been generated around the potential investment in hollydazzle.com, an up and coming business specializing in the online retail of holiday merchandise. Hollydazzle.com has managed to turn a positive gross margin in its first year of existence, and many experts are bullish of the potential growth rates of the industry as a whole. However, it is in our investment groups belief that these numbers must be second guessed, and after careful analysis we should look elsewhere to invest its money. At first glance, the case for an investment in hollydazzle.com appears to be a strong one. The firm not only posted a positive gross margin in its first year, but also is predicted to grow at a rate of 50-55% annually according to Forrester Research. Furthermore, hollydazzle’s cash flow situation will be improved upon dramatically, with a one-time site development charge coming off of the books at the end of FY1999. But is this growth sustainable? How does this translate to the bottom line? To answer these questions the group prepared a projection of financials using an estimated annual income statement for the next 5 years. All assumptions for these projections are listed at the end of this memo. As can be seen in the attached forecasted P&L for hollydazzle.com (Exhibit 1), even with a projected annual growth rate of 50%, the firm loses an increasing amount of money relative to sales at the gross margin level. While operating profit improves after the first year, it proceeds to hover around the -8% threshold for the foreseeable future. Based on these financials, hollydazzle.com is projected to lose more and more money annually on both a gross and operating

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