eToys Inks $18 Million Deal With AOL

Online toy retailer eToys (Nasdaq: ETYS) has had a presence on America Online (NYSE: AOL) for two years already. Now that presence is going to get a lot bigger — and more expensive. Today, eToys announced that it has expanded its marketing relationship with AOL with a new three-year $18 million agreement.

Under the terms of the deal, eToys will be the premier retailer of children’s products — including toys, videos and books — across numerous AOL brands. eToys will be the anchor tenant for the Toys, Educational Toys, Kid and Baby Gear, Collectibles, and Electronic Games categories of the new Shop@AOL area. In addition, EToys will receive additional promotion in other Shop@AOL categories, as well as AOL.com, Netscape Netcenter, Compuserve and the AOL Families Channel. EToys will also be the exclusive provider of products promoted in selected categories in the AOL Kids Only Channel.

“For eToys, the AOL agreement is a linchpin of an accelerated marketing effort that will aggressively drive eToys’ brand awareness with consumers,” said Toby Lenk, CEO of eToys. “We’ve enjoyed a high-impact relationship with AOL since our company was launched two years ago.”

About eToys & AOL

eToys bills itself as the leading online retailer of children’s products, with more than 100,000 items including toys, video games and baby products. eToys also owns BabyCenter.com, which offers information resources for expectant parents.

At least in the minds of investors, eToys has established itself as the online brand for toys, but leading brick-and-mortar retailer Toys R Us (NYSE: TOY) has recently expanded its Web presence. Last week, Toys R Us named Hasbro executive John Barbour as president and CEO of its e-commerce business. A major showdown between Toys R Us and eToys could be on the horizon.

AOL, based in Dulles, Virginia, has more than 17 million members for its AOL online service and another 2 million for the CompuServe service. On the Internet, AOL attracted nearly 30 million unique visitors in June, ranking its group of sites second behind Yahoo!, according to Web researcher Media Metrix. AOL shopping sites saw more than 10 million unique visitors that month, putting it behind only Amazon.com in that category.

AOL and eToys have been working together since 1997, and eToys called AOL the “linchpin” of its overall marketing effort to create brand awareness and build sales. Based in Santa Monica, Calif., eToys carries more than 100,000 items for children and babies. The company also operates BabyCenter Inc., a site for new and expectant parents.

Stock Impact

Shares of eToys climbed nearly six percent in early trading today after the news, rising 1-3/4 to 32-1/4. Shares of America Online were up 2-3/16 to 87-3/16.

eToys stock is still trading near its all-time low and well off its high of 85. Still, at 32-1/4 the company is valued at nearly 3.3 billion, just about $400 million less than the value of Toys R Us. Shares of Toys R Us were up 1/16 to 14-13/16 in early trading today.