Many other Internet stocks may have dropped more in value since April,
but few have lost as much buzz or cachet in the investor community as
women’s Web site network iVillage.
ivillage (IVIL) went public on March 19, offering 3.65 million shares at $24,
the top of its pricing range. The stock opened trading at $95.88, one of
the most dazzling Wall Street debuts of the year, before closing at
$80.13. It was a hot, hot stock, reaching $130 per share on April 13.
Other than a couple of rallies, it’s been almost all downhill for
iVillage since then, with shares hitting a low of $25.50 on Aug. 10.
IVIL was trading at $35 early Friday afternoon.
Nothing the Silicon Alley content player does recently seems to inspire
investor confidence. Late Wednesday the company announced it would buy
community Web site FamilyPoint for $26 million in cash and stock. FamilyPoint’s site
enables families, friends and others with similar interests to engage in
private communications via the ‘Net. With an estimated 700,000
registered users, Goldman Sachs analysts said FamilyPoint could add
$1.5 million per quarter to iVillage revenue, according to The Wall
Street Journal.
So how did the market respond to the news? IVillage shares dropped 4% on
Thursday.
Early last month, iVillage reported Q2 earnings that showed the company
more than tripling revenue and losing less per share than analysts’ had
forecast. The result? Share price stumbled for more than a week.
Back in April, iVillage also more than tripled revenue and beat
analysts’ estimates for losses. Share price fell 11% that day.
I think there are two things going on here. One is that iVillage has a
business model – a content and community site relying primarily on
advertising revenue – that is not now in favor among investors, who
currently lean toward infrastructure and business-to-business e-commerce
plays. iVillage is trying to combat that by increasing e-commerce
revenues, which hit $2.1 million, or 26%, of sales in Q2, up from
20% in Q2 ’98.
The other thing is that, while iVillage indeed has been beating
analysts’ estimates for losses, the company continues to bleed badly. To
be sure, there’s plenty of red flowing elsewhere in the Internet
universe, but with nearly $35 million in losses through the first half
of the year, it’s understandable why investors are leery. Especially
since iVillage had developed a reputation on Wall Street as too
free-spending, even back when investors eagerly awaited the IPO.
Relative to other content sites, iVillage isn’t terribly overvalued at
33 times revenue (in contrast, drkoop.com is valued at nearly 200 times
revenue, while Go2Net is trading at more than 100 times revenue). It has
an excellent brand name, great revenue growth and heavy traffic.
Unfortunately, what’s grabbing investors’ attention are the losses. And
with the FamilyPoint purchase expected to increase per-share losses
through the year 2000, it may be awhile before that changes.
I’d like to wish everybody an enjoyable and relaxing Labor Day weekend.
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