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Well Grounded? iTURF, the Hormonally Challenged Web Stock

Investors looking at iTURF's pending IPO plans may find the story compelling on several levels but first let's get through the "generation Y" concept since that's the center of iTURF's turf.

First of all, I'm always a bit skeptical of any new product or service that borrows heavily from the jargon of the marketing brigade on Madison Avenue, which in turn finds convenient labels for entire teeming masses of teenagers raging at the hormonal stage.

Generation "Y." Convenient label that logically follows Generation X. To be followed by generation Z at some juncture and then we start over again right?

Gen Y is at the heart of iTURF's buzz word parade and business model but how ground is the firm as it plans for IPO?

For the record I think the generation scrubbing acne and outgrowing sneakers every week is better described perhaps as "generation Net." This is the first generation, after all, that's using the Net in the classroom as commonly as previous ones used a desktop PC or a basic blackboard.

iTURF's use of terms shows to me a basic lack of touch with the everyday teen. Where iTURF does go right however looks like in the what it offers to those teens. Mostly girls anyway. Cool, hip, trendy, clothing.

What used to be a mall browsing experience has now become a Web browsing one for teen girls that want to be stylish and get their apparel delivered to the doorstep with a mouse click (or rather Web click).

The centerpiece of iTURF is its Web site which it wants to make "the online meeting place and community for young men and women of Generation Y." The thing that put iTURF on the map so far is mostly dELiAs.cOm, the virtual store where girls buy stuff and their parents squabble over how many items per day they order.

Another Web site iTURF offers is gURL.com. But with so much "gurly" stuff it doesn't have much boy appeal yet. iTURF's "droog" site hopes to answer their call. But not yet. There are other sites in the iTURF arena but nothing to tell mom about. The numbers:

iTURF reported $1.893 million revenue with clothing sales through October 31, 1998 or a annual $2.5 million if it held up. My estimate for 1998 could show it closer to $3 million as the Christmas and holiday season traditionally makes up about a third of retail sales. And hordes of wannabe cool 7th graders swarmed the site more than likely looking to outdo friends with gear to wear back to school.

Let's get closer to valuation scenarios. Based on $3 million estimated for 1998 and the goal to raise $46 million with its IPO I ballpark iTURF's initial market value target at about $230 million. Assuming iTURF posts $10 million sales in 1999 that implies a revenue multiple of 30x perhaps at IPO. That's in line with the average revenue multiple for a cross-section of Internet stocks.

Best thing about iTURF looks like the relationship it has with the parent catalog company which has a circulation of 60 million and a 9-million member database. The catalog business gives it vendor relationships, fulfillment expertise and a history.

The catalog reach and word of mouth in schools propelled iTURF's Web traffic from 800,000 in February 1998 to about 22 million in December 1998.

The problem and risk with investing in the clothing business, Web-enabled or not: remember when you were a teenager and one store or clothing brand was "in" and then at some point it was "out"? One week a song tops the charts and a few weeks later it's not?

So you see the risk inherent in the model of trying to stay in the cool stuff to buy brigade for Gen Y, the Net gen -- all right, how about the hormonally challenged generation.

An iVillage it's not (the women's network). But swarms of spec traders will probably ignore the fashion risks and buy this IPO on impulse anyway.

Accolades:

"Fresh and provocative" -CBS Marketwatch, who named Steve Harmon one of the top Internet stock analysts and only independent one honored

"I am a huge fan of Steve Harmon's analysis" -Kleiner Perkins' John Doerr



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