Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Alloy's Tarnished Quarter

Alloy (Nasdaq: ALOY  ) , a nontraditional marketing firm focused on the large and promising 10- to 24-year-old age demographic, announced another tough quarter last Friday. Unfortunately, a key effort for its future is struggling as well. The company acquired Sconex, a social-networking site, earlier this year, perhaps in an effort to show clientele that it "gets" social marketing to teens.

That strategy seems to have backfired thus far. According to traffic ranking site Alexa, Sconex's page views have plummeted more than 90% since April, when traffic spiked, presumably based on the acquisition publicity. This puts the site's page views far below even its pre-acquisition levels. Then again, Alloy is no stranger to poor acquisitions, with both Dan's Competition (a bicycle equipment retailer) and the ill-fated dELiA*s left in its wake.

That said, the firm's financial picture seems to be improving, based on the latest quarterly results. The firm paid off convertible debenture holders with a cash premium to induce them to convert to Alloy and dELiA*s stock, removing $56.6 million of debt from Alloy's balance sheet and reducing interest expense by $3 million a year. However, this came with substantial cost -- $15.8 million in cash, which drove the company into an ugly net loss of $7 million this quarter. Unfortunately, the top line doesn't look too impressive, either. Revenues grew only about 1% to $63.7 million in the third quarter, which is usually the company's strongest.

With clients like Qwest (NYSE: Q  ) , Verizon (NYSE: VZ  ) , and Procter & Gamble (NYSE: PG  ) , the firm obviously has a compelling value proposition of sorts, but not enough to capture a more substantial portion of these firms' massive advertising budgets. To me, this shows the clear delineation between the "haves" -- the larger advertising firms like Omnicom Group (NYSE: OMC  ) and WPP Group (Nasdaq: WPPGY  ) , which can present a one-stop solution for clients -- and the "have not's" like Alloy.

With weak growth forecast for next year (high single-digit growth in EBITDA), and a balance sheet that has 55% of its assets in goodwill (higher than the marketing firms mentioned above), I'm not very impressed with this company. With Alloy's incredibly poor prior acquisitions, and the latest one shaping up to be a dud as well, that goodwill is ripe for potential write-downs and further pain for shareholders. Investors would do well to steer clear of this one.

More Alloy Foolishness:

Whatever your demographic, the Fool has a newsletter for you. Find financial and investing advice that fits your needs with a free 30-day trial.

Fool contributor Stephen Ellis does not own shares in any companies mentioned. You canview the stocks he owns and check out his99th-percentile ranking and CAPS blog in Motley FoolCAPS, the Fool's new stock-rating community. The Motley Fool has adisclosure policy.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 517747, ~/Articles/ArticleHandler.aspx, 10/26/2016 12:40:27 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 3 hours ago Sponsored by:
DOW 18,169.27 -53.76 -0.30%
S&P 500 2,143.16 -8.17 -0.38%
NASD 5,283.40 -26.43 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

11/9/2010 3:58 PM
ALOY.DL $9.79 Down +0.00 +0.00%
Alloy, Inc. CAPS Rating: ****
OMC $80.08 Down -0.37 -0.46%
Omnicom Group CAPS Rating: *****
PG $86.97 Up +2.87 +3.41%
Procter and Gamble CAPS Rating: ****
Q.DL2 $6.83 Down +0.00 +0.00%
Qwest Communicatio… CAPS Rating: **
VZ $47.84 Down -0.37 -0.77%
Verizon Communicat… CAPS Rating: ****