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Friday, August 20, 1999

Intelligent Life Corp.
(Nasdaq: ILIF)
Phone: 561-627-7330
Website: www.intelligentlifecorp.com
Price (8/19/99): $4 13/16


Is there Intelligent Life on the Internet? Yes, thanks to underwriters ING Baring Furman Selz and Warburg Dillon Read. Trouble is, investors aren't so sure. File this one under X and call Mulder.

OK, I find the company's name goofy, but investors who bought into the initial public offering (IPO) on May 13 aren't amused. This new media publisher of personal finance sites, principally Bankrate.com, fell below its IPO price of $13 per share shortly after hitting the market.

And it fell some more and kept on falling. All for no apparent reason, aside from the possibility that it was priced too high or was simply late to the Internet IPO party.

Ironically, Intelligent Life is one of the few Internet companies that would seem to benefit from the rising interest rates that have helped depress the sector of late. That's because consumers become most interested in the loan comparisons provided by Bankrate.com when rates are volatile. Plus, the company is now sitting on a wad of cash and no debt.


Based in North Palm Beach, Florida, Intelligent Life is an online publisher of Bankrate.com and other personal finance sites including theWhiz.com (targeted at a young female audience), Consejero.com (for a Spanish-speaking audience), CPNet.com (for college students), and the subscriber-based Garzarelli.com (for those who love Elaine, the former stock market gooroo).

About 40 staffers compile data from 123 geographic markets regarding mortgage and home equity loans, credit cards, auto loans, checking accounts, ATM fees, and yields on CDs and other savings instruments. The company's writers add editorial content to help consumers make good decisions and, presumably, lead a more intelligent life.

In June, Bankrate.com attracted 1.05 million unique users, up from 0.68 million in March, according to Media Metrix.

This Bankrate.com information is also distributed via 70 other sites, including America Online (NYSE: AOL), Yahoo! (Nasdaq: YHOO), Time Warner's (NYSE: TWX) CNNfn, Dow Jones' (NYSE: DJ) Smart Money, Gannett's (NYSE: GCI) USAToday, Bloomberg.net, and online versions of newspapers such as the Dallas Morning News. Other deals involve co-branded sites.

In June, Intuit's (Nasdaq: INTU) Quicken.com notified Intelligent Life that it would not renew its distribution agreement. That deal accounted for 7% of Intelligent Life's site traffic year-to-date.

The company derives revenues from its online publishing by selling ads, sponsorships, and hyperlinks on its websites. Nearly a third of its revenues still come from print publishing and licensing, mainly ad sales related to its Consumer Mortgage Guide rate tables published in newspapers. The company has provided print-based interest rate surveys for 16 years.

The company enjoys a solid senior management team. President and CEO William Andersen, for example, served as CEO of H&R Block's consumer lending subsidiary Block Financial until June 1997. Before that he was Block's CFO.

Insiders own 67% of the stock, with most (40.8%) owned by Peter Morse. The company's former Chair and CEO, Morse manages the Morse Partners venture capital fund. He was previously Chair of FAO Schwarz.


Income Statement*
12-month sales: $8.5 million
12-month income: ($18.8 million)
12-month EPS: ($3.47)
Profit Margin: N/A
Market Cap: $64.7 million
(*Reported loss includes significant non-cash stock-based compensation and charges related to the redemption of preferred stock.)

Balance Sheet
Cash: $39.4 million
Current Assets: $41.2 million
Current Liabilities: $3.9 million
Long-term Leases: $0.4 million

Price-to-earnings: N/A
Price-to-sales: 7.6


With so many Internet companies going public and so many investors looking for the next heavy hitter, a safe default position is that the best businesses will be found among the dozens of stocks that have hit a homerun on the first day. After all, if there's any reason at all to get excited about one of these companies, some smart group of investors actually will get excited.

Hot Internet IPOs often leap more than 50% on the first day of trading. Intelligent Life, however, barely traded above its offering price and closed the day unchanged. Strike one.

Hot Internet IPOs tend to price not just at the high-end of their prospective price range but above it. Intelligent Life was offered merely at the high-end of its $11 to $13 range. Strike two.

Hot Internet IPOs tend to have high-profile venture capital backing or at least major, tech-savvy underwriters. Intelligent Life has just two middle-tier underwriters. Strike three, you're out!

The fact is, investors lucky enough to get their hands on an Internet IPO are usually looking for that one-day homerun. If the stock doesn't land in the stands, these "investors" often bumrush the exits, making it impossible for the underwriters to support the stock.


The short-sellers who were smart enough to bet against Intelligent Life had pretty much covered their positions by mid-July. As it turns out, that was a little early, but one can see the logic. The stock's downside seems limited, thanks to its nearly $3 per share in cash.

Of course, Intelligent Life has burned money like a typical Internet company. Its accumulated deficit thus far is $20.7 million. Reported losses year-to-date include some non-cash items, yet the company has still used $5 million to fund operations. And the cash will keep flowing out for a while.

On July 20, Intelligent Life announced plans to ratchet up marketing expenditures with a $20 million "integrated communications" campaign to build brand awareness. Some $2 million will go to print ads promoting Bankrate.com while another $10 million will be spent on online banner ads and sponsorships.

The rest of the money will go to other PR efforts. The latter category apparently includes Cost of Life, a new weekly two-minute consumer money report that TV networks or their affiliates can air as part of their news programs.

These segments will address personal finance issues like how to save money tax-free for college. Intelligent Life's websites will run related online columns and host moderated message boards where consumers can get additional advice. Cost of Life will be the first programming produced by the company's new broadcasting division, which will create materials for distribution via TV, radio, and broadband.

These are all smart initiatives because the company clearly needs a higher profile. I must confess, I had never heard of Bankrate.com, but some browsing around indicates that this is a high-quality, nuts-and-bolts personal finance site that combines proprietary data with smart commentary. If you're shopping for a mortgage or a credit card deal, Bankrate.com offers a lot of useful information.

Still, it's been discovered already by many consumers. Intelligent Life's online revenues are already producing accelerating growth, albeit from a small base. Online revenues rose 21% sequentially in the December quarter, 38% in the March quarter, and 41% in the June period when online publishing sales shot up 332% year-over-year to $1.9 million. That amounted to 68% of the company's overall sales, up from 37% a year ago.

Annualized online sales now amount to $7.7 million. Assume merely flat publishing revenues, and the company is now operating with annualized revenue of about $11.2 million. So it's trading at about 5x this conservative sales estimate or just 1.8 times sales after adjusting for cash. For the sector, that's very cheap.

Like other online financial information providers, Intelligent Life is spending a lot to build its brand and add staffers to provide content. Yet, this is a new media company that can avoid heavy capital expenses, so its growth in core operating expenses should eventually flatten out while the discretionary marketing will be reined in.

Assuming there's sufficient consumer demand for independent and reliable banking and credit information (and I think there is), the company could eventually enjoy the kind of operating leverage that can provide fat profits.

For now, though, the analysts are forecasting a couple of years of heavy losses. And investors have at least temporarily soured on Internet companies that seem too content to lose money. That provides a good opportunity for investors with a longer horizon to take a closer at this beaten-down small-cap.

-- Louis Corrigan

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