Between the lines: Beauty and the profit beast

You can't blame former marketing executive Bronwen Evans for being grumpy.

It must be frustrating for the thirty-something head of online beauty store BeautyDirect to watch her company's share price plummeting.

All this despite the fact that BeautyDirect recently reported an annual result that was not too far off its forecasts.

It had predicted sales for its first year of just $252,000, and a loss of $440,000.

In the event, it sold $199,000 of beauty products, and made a loss of $508,000.

While the result was not wildly out, you would certainly hope that would be the case, given that its financial year ended on March 31, and its forecasts were published less than four weeks earlier.

What investors really want to know is whether the company is likely to hit next year's sales target.

According to Ms Evans, it is on track to do so. But it is nevertheless galling to see her boasting of a 250 per cent increase in sales without being more specific.

Given that the company has forecast sales of $1.1 million by next March, its sales had better be growing at a spectacular rate.

But what is even more galling is to have Ms Evans complaining of being "caught in the hype" that has surrounded April's Nasdaq meltdown.

Funnily enough, there were few complaints from internet-based companies about being "caught in the hype" when the Nasdaq was setting ever-higher records.

And despite what Ms Evans now claims, BeautyDirect is no stranger to hype itself.

Although it is now calling itself a direct marketing company, its prospectus made it quite clear what business it was in.

"The goal of BeautyDirect," it stated, "is to become a major international beauty products sales portal on the internet: a sales medium which is already improving dramatically and promises to be a major growth area."

What is clear is that other internet companies will eventually learn from these pioneers' mistakes.

As some investors have finally twigged, internet-based businesses are no different from any other businesses - they need to sell things at a higher price than they buy them or produce them for, and make sure the margin more than covers their costs.

What has gone wrong for many e-tailers is that they have seriously overestimated their sales and under-estimated their costs.

It is probably just as well that the New Zealand Stock Exchange includes few technology stocks.

But the ones that have made it to market have done us all a favour. By being forced to publicly disclose their figures, some facts have finally been injected into the fantasy.

You can't blame those who missed out on instant riches for being disappointed. But the real disappointment is that it has taken so long for reality to finally sink in.