Monday, March 8, 1999

Individual Investor Group
(Nasdaq: INDI)
Phone: 212-843-2777
Website: http://www.iionline.com
Price (3/5/99): $5 13/16


Financial news publisher Individual Investor Group (Nasdaq: INDI) picked a good time to focus on its Web strategy. The January 15th IPO of MarketWatch.com (Nasdaq: MKTW) led investors to bid up the shares of nearly every company offering online financial news and information. Riding those coattails, shares of Individual Investor Group ran from $1 per share to nearly $12 in just a few months.

Last fall, the situation looked bleak for this publisher of the popular monthly magazine Individual Investor. The stock had plunged into true penny stock land after trading as high as $14 per share in May 1996. The company had also exited the money management business, partly due to a cash crunch. Indeed, losses on marketable securities left the firm eager to sell $2 million worth of its own convertible preferred stock to Great American Insurance Co. on November 30 in a deal that valued Individual's common stock at the market price of just $2 1/8 per share.

On December 2, though, the company announced a redesigned IIOnline.com website, noting that traffic had increased 67% from June to November, with November impressions topping 3 million. Distribution agreements with the likes of Thompson Invest and iSyndicate meant millions of new Web surfers, including theglobe.com's (Nasdaq: TGLO) 2.3 million community members, now had direct access to Individual's content.

Impressions for December rose to 4.1 million, up another 34% in one month. After expanding its online message boards, IIOnline's traffic exploded 62% to 6.9 million impressions in January.

As Data Broadcasting (Nasdaq: DBCC), MarketWatch's minority owner, shot into the stratosphere in mid-January, Individual followed, rising to $11 per share. Though the stock quickly dipped again, it just as quickly rebounded after Bloomberg reported on February 12 that Yahoo! (Nasdaq: YHOO) would feature IIOnline's content in its popular finance area. Even though it is well off its recent high, Individual's stock has soared since November.


Individual Investor Group was founded in 1987 by Chairman/CEO Jonathan Steinberg, son of Wall Street financier Saul Steinberg, who heads Reliance Group Holdings (NYSE: REL). Individual was taken public in 1991 by GKN Securities, a firm that later ran afoul of the securities laws.

The company's flagship Individual Investor (circulation 500,000 as of March 1998) is a glossy monthly magazine providing consumer-friendly analysis, mainly of small-cap stocks. Indeed, it grew out of a newsletter originally called the Penny Stock Journal. Individual Investor includes updates of its annual list of hot stocks, the Magic 25.

The firm also publishes the monthly subscription-based Special Situations Report (circulation 5,000) and Ticker Magazine (circulation 90,000), a trade publication distributed free to financial advisers. The company recently acquired InsiderTrader.com, an Internet-based subscription product (2,400 customers) that tracks trades by corporate insiders.

About 81% of FY97 revenues were derived from Individual Investor magazine, with advertising accounting for most of that. For the first nine months of FY98, 70% of overall revenue from continuing operations came from ads, 18% from circulation, and the balance from subscriber list rentals and other sources.

IIOnline was originally launched in May 1997. Through deals with Yahoo!, CNET (Nasdaq: CNET), Alta Vista, Hoover's Online, and other Internet sites, IIOnline's content is widely distributed.

The company's WisdomTree Capital Management subsidiary ran and invested in a domestic hedge fund while providing advice to an offshore fund, both of which focused on small-cap companies. The company decided last April to get out of this business. Assets under management had declined from $66 million to $47 million.

As of the April 1998 proxy, insiders owned 34% of the stock while about 3.2 million shares, or 43% of the total outstanding, were controlled by "Jono" Steinberg and his father. On June 26, Wise Partners, a limited partnership controlled by Jono, acquired an additional 1.26 million shares for $5 million.


Income Statement*
12-month sales: $16.4 million
12-month income: ($6.94 million)
12-month EPS: ($0.93)
Profit Margin: N/A
Market Cap: $49.3 million
(*Based on continuing operations.)

Balance Sheet*
Cash: $5.2 million
Current Assets: $8.7 million
Current Liabilities: $3.2 million
Long-term Debt: None
(*As of September 30)

Price-to-earnings: N/A
Price-to-sales: 3


A cover story in the New York Times Sunday business page in June 1997 made it clear that Steinberg's empire was benefiting from the bull market surge in investor interest. Subscriptions to the company's flagship magazine soared, with commensurate hikes in ad rates.

Yet, as anyone reading this knows, individual investors increasingly have been going online to find financial news and commentary. Steinberg's company needed to get in on that action. Individual's story became far more compelling once it got out of the money management business and re-launched its website, driven by new management talent.

With the MarketWatch IPO causing investors to re-evaluate the entire sector, Individual might have looked like an interesting speculation, despite its willingness to sell equity on the cheap and its history of losses. After all, Individual had an established brand and more than half a million paying customers. Plus, MarketWatch's financials were actually less attractive.


In August of 1997, the company hired Bear Stearns to explore "strategic initiatives to enhance shareholder value." That exploration apparently didn't get very far. Perhaps Individual struck investors as an odd combo: a publisher that also ran a hedge fund, one not afraid to walk on the wild side.

Wisdom Tree, for example, just happened to take a major stake in Diana Corp. -- now known as Coyote Network (Nasdaq: CYOE). This fish merchant turned network equipment company soared from $5 per share to $110 per share in 1996 (before plunging and being delisted by the NYSE) in what some consider one of the decade's greatest stock rigs. Steinberg's fund took a position early enough to make a killing.

The new focus on publishing is a smart move. And that business has recently improved after going through a rough stretch during which it lacked a publisher, lost its CFO/director of Internet services, and suffered through declining ad revenues after canning its West Coast ad representative.

Indeed, lots of new blood runs through the company's top management ranks. Additions since last April include group publisher Mark MacDonald, formerly with Wenner Media where he was founding publisher of Men's Journal; publisher Brette Popper, formerly publisher of Gannett's (NYSE: GCI) USA Weekend; new IIOnline editor Steven Taub, formerly editor-in-chief at Financial World; and new director of Internet technology Michael Valentin, formerly director of new media at Time Warner (NYSE: TWX) where he was operational engineer for the Pathfinder site.

While the company is likely to lose more money this year as it grows its online business, Q3 1998 results did show modest improvement. Revenue increased 10% to $4.0 million, while operating expenses inched ahead just 4%, cutting the loss from continuing operations by 12% to $1.3 million, or loss of $0.16 per share, versus a loss of $0.23 per share in Q3 1997.

While ad revenues for Ticker shot up 72% to $0.65 million, the more interesting growth came from IIOnline, where ad revenues jumped nearly nine-fold to $0.31 million. That's still tiny, but the recent month-over-month increases in Web traffic, which the new deal with Yahoo! should only accelerate, suggests this number will continue to grow dramatically.

Though the company's flagship magazine has recently veered away from its heavy emphasis on small-cap stocks, the company's historical concentration on these issues should actually prove an advantage on the Web, where individual investors troll for undiscovered names. Plus, Individual should be able to leverage not just its existing content, but its significant customer base to create a viable Web presence.

Of course, Steinberg hopes he can eventually charge a user fee to Web surfers who don't subscribe to the company's magazines. That's not likely to happen anytime soon, given that the site lacks the well-known writers featured at TheStreet.com or the presence of the major offline financial press. As a result, the company will likely need more cash later this year.

Still, with MarketWatch valued at $800 million, Individual could still prove an interesting speculation, particularly if the stock continues its recent slide. MarketWatch recently reported FY98 revenue of just $7 million, leading to a loss of $12.4 million for the year. Its Q4 results point to run-rate sales of $10.1 million and an annual operating loss of $16.6 million, considerably less attractive than Individual's current magazine-heavy numbers.

Of course, MarketWatch has a much stronger web presence, which is what's drawing the premium valuation. MarketWatch reported an impressive 160 million page views in the fourth quarter, up 29% sequentially. Growing faster from a smaller base, IIOnline reported just 14 million impressions during the same period.

Assuming that TheStreet.com's forthcoming IPO goes well and Individual can continue posting strong growth in page views, the company may find outside investors, maybe even a real strategic partner, more willing to bet on it. Or, perhaps Saul and friends will simply boost their stake. With more substantial financial backing, Individual has a chance to carve out a meaningful niche on the Web. In the meantime, though, the stock will probably prove a very wild ride.

--Louis Corrigan

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