AOL Gets ‘Flowers’ Until 2003

America Online (NYSE: AOL) and online florist 1-800-Flowers.com (Nasdaq: FLWS) announced today that they have extended and expanded their partnership until 2003.

Under the terms of the 4-year, $37 million (US$) deal, 1-800-Flowers.com will continue as the exclusive third-party marketer of fresh-cut flowers on AOL and AOL.com. Starting in 2000, the online florist will also hold the same exclusive with Netscape Netcenter, CompuServe, Digital City and ICQ.

Anchor Positions

For one year during this new contract, 1-800-Flowers.com will be the exclusive third-party marketer of gardening products across AOL’s properties. The online florist will also have anchor positions in both the gifting and gourmet gift categories and be available internationally through ICQ. “Our companies have grown together over the years,” said Myer Berlow, AOL’s president of interactive marketing. “We believe that expanding our relationship with [1-800 Flowers] across key AOL brands will provide them with unparalleled reach in cyberspace.”

Much Needed Deal

Meanwhile, before going public last month, the Westbury, New York-based 1-800-Flowers.com cited its heavy dependency on Internet portals and American Online to drive its business as a potential risk factor in its filing with the Securities and Exchanges Commission.

“If these third-parties do not attract a significant number of visitors, we will not receive a significant number of online customers from these relationships and our revenues will decrease or not grow,” the filing says.

It also lists the increasing costs of maintaining these relationships in the filing, revealing that it shelled out $4.3 million to companies such as Excite, Microsoft Network and AOL for the nine months ended March 28, 1999.

However, industry observers feel that the $37 million paid by 1-800-Flowers.com to the number one online service is money well spent — considering AOL’s 20 million plus subscribers’ potential buying power. Additionally, the deal will be a bargain if it keeps 1-800-Flowers.com out in front of its rival, FTD.com.

The FTD Association established its own 800 number in 1993, went online in 1994 and formed FTD.com as a subsidiary in May. About 6,500 florists in the FTD Association fill the site’s orders. It had also planned to go public last month, but has postponed its scheduled initial public offering.

About 1-800-Flowers.com

In 1986, James McCann decided to take advantage of the popularity of toll-free numbers by founding 1-800 Flowers — allowing customers to bypass their local florists. In 1995, 1-800-Flowers launched its own Internet site and just recently added the dot-com to its name. About 1,500 independent florists affiliate themselves with 1-800-Flowers.com.

Big backers such as Benchmark Capital and Japan’s SOFTBANK have helped to fund 1-800-Flowers.com, which earned $5.1 million on revenue of $221 million in 1998.

Stock Impact

Shares of 1-800-Flowers.com soared more than 13 percent in early trading today after the news, gaining 2-3/16 to 18-1/2. Still, the stock is trading below its August initial public offering price of $21. The stock was expected to be a high-flier, but it went public when the Internet sector was bleeding. The stock of 1-800-Flowers.com has suffered ever since.

Investors seem to be concerned about 1-800-Flowers.com because the once-profitable company is now expected to lose money in the next two fiscal years as it works on expanding its e-commerce reach. Last Thursday, the company recorded a net loss of $6.8 million for the fiscal 1999 year, compared to a profit of $5.1 million the previous year.

Shares of AOL were down 1/8 to 90 in early trading today.

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