Home improvement retail giant Home Depot Inc., Atlanta, began selling its shares on its Web site, launching an interactive direct stock purchase plan that effectively makes the company the first to sell its shares through its own online channel.
The DepotDirect program, designed by Internet investor services start-up StockPower Inc., San Francisco, lets current or first-time investors register, order and pay for shares without any paperwork and without the assistance of an online or conventional brokerage. Payments for stock are deducted from investors' checking accounts.
“It represents a company taking control of stock sales into their own hands,” said Melissa Bane, program manager of Internet market strategies at technology market research firm The Yankee Group. “Certainly the Web is a good environment for any kind of direct sale and I don't see why that shouldn't include stocks.”
StockPower's StockClick service lets companies provide immediate online enrollment into their direct stock purchase plans (DSPP). On Dec. 28, Home Depot became the first company to go live with the program, though at least six other companies plan to add the service to their sites. Among them is Compaq Computer Corp., which is expected to start the program some time in the first quarter. The PC giant currently is undergoing a pilot version that is limited to its 50,000 North American employees.
Investors can enroll in StockClick directly through Home Depot's site at www.homedepot.com by entering their name, address and a checking account number. StockClick assigns a digital ID to investors' home computers for security. Once registered, stock buyers can invest in any of the participating companies and pull up portfolio information from any of their Web sites.
The service is designed to attract individual investors by offering shares with low minimum initial investments. In the case of Home Depot, the minimum first investment is $250, far short of typical penalty-free minimums required by brokerages. First-time investors pay a $5 transaction fee, with subsequent purchases carrying a fee of 5 percent of the stock purchase, up to a maximum of $2.50, and a commission of 5 cents per share. The fee for selling stock is $10 and the commission is 15 cents per share.
Though other firms assist investors in enrolling in DSPPs, StockPower's service amounts to online direct marketing of a company's stock. Home Depot, which has made tentative steps into e-commerce through its Web site, doesn't mince words about its motivation for being the first on board StockPower's program.
“The obvious reason is we want to sell stock,” said Home Depot spokesman Don Harrison. “We want to make it easier for people to buy stock, and buying it online is about as easy a way as we can do it now.”
Some Wall Street pundits have partially blamed the burgeoning trade of stock over the Internet for greater market volatility as inexperienced players enter the market. Internet trading also has contributed to skyrocketing market capitalization among many companies, especially firms with Net-linked business strategies. The total market cap of Internet book retailer Amazon.com Inc., for example, now rivals that of Texaco Inc. — even though Amazon is unprofitable.
But rather than encouraging speculative, short-term investors to buy into Home Depot and other companies, StockPower's trading technology is designed to bring more stable, long-term investors into the company fold. StockClick aims for, but is not limited to, affinity investors such as employees, current shareholders and business partners. People with a stake in a company's performance are less likely to abandon its stock.
“We help the company target and get the kind of investors they want with the plan,” said Pam Allio, StockPower's co-founder and vice president of marketing.
Each company participating in StockPower's program will complete the share purchases according to the terms of its own DSPP, which in the case of HomeDepot means that ordered stock is bought twice a week in batches. The price of the stock is determined by taking the weighted trading average over the days between the purchases. Stock sales on behalf of investors take place daily.
Between the Dec. 28 launch of DepotDirect and Jan. 3, the trading page had about 7,000 hits, with an average length of time spent on the page of about six minutes. StockPower could not provide trade volume information.
As a major selling point to its clients, StockPower is touting the ability of its technology to transform customers browsing companies' sites into investors, and of tempting investors into making purchases through special promotions and offers. In Home Depot's case, 85 percent of the people who have registered for the program have given consent to receive notices through e-mail, including product announcements and financial releases.
“The old motto of turning your customers into shareholders and turning your shareholders into customers, that's one of the big benefits; and that's definitely one of the draws for both Home Depot and Compaq to this plan,” Allio said. “They're attracting their loyal customer base, and they get loyal shareholders as well. So there's a cross-purpose there.”
StockPower also offers other services connected to StockClick, such as advice on targeting Web sites with banners designed to steer potential investors to companies' trading pages. Home Depot has not yet taken that step, though Allio cited architecture- and interior design-related sites as potential gateways the company could use to draw new customers and investors.