AO..All Over?

On Tuesday I warned of the over-valuation of on-line companies (The New Alchemists, March 24th). Three days later there are signs the corrections may come much sooner than anticipated. 

AO the on-line retailer is under market scrutiny as rumours abound it makes more money from selling warranties than white goods. This has long been a thorny problem for electronics goods retailers and in terms of consumer perceptions is right up there with the PPI scandal.

John Roberts, the darling of the market last week as AOs shares soared to over £4 and valuing the company at £1.7bn, is under pressure to come clean on the structure of the business model. There is a deliberate and unhelpful  lack of clarity. Those who live by transparency, will surely stand or fall by opacity. The shares are down 25% from their launch high and with 1.75% in the hands of shorters there is much room for negative speculation to drive the price lower.

All of which raises a bigger question. In an on-line world that is increasingly Amazon, is there really long term space for a one category play? Rather like earlier musings on Ocado, Roberts might just be developing a neat white goods fulfilment model for someone else to wrap into their business. So whilst rumours of AOs demise are way too premature, concerns for a bursting bubble are not unwarranted.