LOS ANGELES — As 2000 began, the future looked promising for fledgling Internet retailer eToys.

        Sure, the company got a load of bad publicity when it failed to deliver some Christmas toys on time, and its stock had fallen 70 percent from its peak of $84 a share three months earlier.

Toby Lenk left his job as a corporate vice president at Walt Disney Co. to found eToys.

        But it had quintupled its customer base to 2 million, and had sold more toys than rival Toys R Us during the all-important holiday season. And its recently opened British site was successful beyond all expectations.

        “We believe our largest quarterly loss is behind us,” founder and chief executive Toby Lenk wrote to shareholders last March.

        But losses got bigger — so much bigger, in fact, that they eventually drove eToys out of business.

        The company said Monday that it will file for bankruptcy protection within days. Its stock price is measured in pennies. At the end of March its cash will run out, and the last employees will leave their Los Angeles headquarters.

        So what went wrong?

        Analysts say eToys' swift demise was the result both of the company's ambitious plans and a sour investing climate that began last spring.

        “What they did right was create a wonderful brand name, increase sales at a phenomenal rate and become the premier online resource for people to buy toys,” said T.K. MacKay, a stock analyst with Morningstar Inc.

        “What they did wrong was to operate a business without the financial capacity to weather a downturn in the retail market. Everyone expected sales to continue to be robust last Christmas and they weren't.”

        When he founded eToys in 1997, Mr. Lenk rejected the notion that an online toy store couldn't compete with traditional outlets. Maybe, but for now it seems the physical presence of Toys R Us, Wal-Mart and others is too hard to overcome.

        Mr. Lenk declined to be interviewed by The Associated Press. Calls to three eToys board members who resigned last week were not returned.

        The company raised $166 million when it went public in May 1999. On the first day of trading, its stock price on the Nasdaq Stock Market nearly quadrupled to about $76.50 a share.

        During its first holiday shopping season after going public, the site was swamped by orders. Late shipments dogged the company. Analysts say it also made customers wary of holiday Web shopping during the 2000 holiday season.

        Etoys spent $150 million to build two distribution centers.

        EToys had told investors to expect sales of up to $240 million in the quarter ended Dec. 31, 2000, and an operating loss up to $67 million.It expected to turn its first profit by 2002.

        But the Christmas-time sales never came.
       

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