One of the most-searched categories on the Internet is health, and major companies are paying attention. General Electric's (NYSE:GE) NBC Universal division, for one, recently purchased iVillage (NASDAQ:IVIL), which focuses on such topics as women's health, for $600 million.
But the interest hasn't been extending so far to eDiets.com (NASDAQ:DIET), and that's causing the online diet specialist to seek new avenues for income. True, eDiets' stock had a strong run since the beginning of the year -- from $5.78 to a high of $8.45 last week -- but after the company's latest earnings announcement, the stock got whacked and closed Monday at $4.89.
The core business of eDiets is to license a variety of diets, such as Zone and Atkins, and to develop personalized online weight-control programs for its customers based on those diets. The company monetizes the diets on a subscription basis.
But this is a tough business to grow. After all, consumers have many options for dieting, both online and offline. Moreover, it's expensive to acquire customers, and online advertising prices have only increased over time.
So even though revenues increased 8.5% in the fourth quarter to $12.1 million, and despite recording net income for the period of $1.5 million, or $0.07 per share, up from a net loss of $100,000 in the same period a year ago, eDiets is having to branch out from its subscription model.
The company will now focus on online advertising and other traffic-generating properties, such as Internet-based magazines and videos. To that end, eDiets recently launched an online magazine, Glee. It will also offer dietary foods and in January it launched FreshCuisine, which serves up more than 400 menu items. Customers can order the food online or by phone. Finally, the company plans to pursue licensing opportunities with its content and technology. It helps that the company already has an attractive demographic and has even signed up some large advertisers to help in its push, including Coca-Cola (NYSE:KO).
But even so, it takes capital to get visitors to the sites. If it can't attract visitors, it could face the same problem it had under its subscription model -- the costs associated with customer acquisition. And as mentioned, consumers do have a tremendous amount of quality dietary online options.
The company announced that it expects non-subscription revenues to grow at a mid- to high-single-digit pace. Non-subscription businesses are expected to double or triple, with half of non-subscription revenues coming from its meal delivery business.
Making a transition on a business model is definitely a big bet -- it's kind of like switching diets! Couple that with the problem of limited resources -- about $8.6 million in the bank -- and it's safe to say that investors should probably wait another year before taking the plunge here.
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Fool contributor Tom Taulli does not own shares of companies mentioned in this article.
