It seems that eDiets.com
But maybe it has some excuse -- I mean, the company has been in the midst of a transition. Premium subscriptions form the core of eDiets.com's business model. Users log in to choose from a variety of dietary approaches, including the Zone and Atkins. The biggest problem with this type of business model is that the online (and offline) dieting space is quite crowded, and it's getting more difficult to convince users to pay up for calorie-counting advice. With online advertising getting more expensive, acquiring new customers has also become less profitable.
Over the past year, the subscriber base of eDiets.com has plunged more than 15% from 247,000 to 205,000.
So what is eDiets.com's new plan? The company is trying a number of strategies. First, it's gaining traction with a more aggressive move in online advertising. According to the conference call, eDiets talked about strong pricing on ads, as well as solid demand overall.
Next, eDiets is actually selling food through its FreshCuisine division, which serves up more than 400 menu items. Early signs indicate that the program is successful.
Lastly, eDiets acquired Nutrio.com for $8.5 million in cash (along with up to $2.5 million in earn-outs). This intriguing acquisition develops private-label health and wellness programs for major companies.
But where did eDiets get the money for this deal? The company also announced a $10 million private placement with Prides Capital. Prides Capital is a hedge fund that focuses on buying large blocks of small- and micro-cap stocks. The firm takes an active role in its companies; in this case, it's got a seat on eDiets' board.
The private placement includes a variety of tranches. Prides Capital is purchasing about 1.98 million shares at $5.05 from the company. The deal also includes warrants of 1.2 million (with a strike price of $6). In addition, Prides Capital is also buying seven million shares from eDiets' founder and chairman, David R. Humble, for the same $5.05 per share. Lastly, eDiets has agreed to file a registration statement for the shares, so that Prides Capital will have the ability to sell them on the open market.
Looking through the financing documents of these private placements, the overall deal is fairly ho-hum. There are no toxic elements that would give Prides Capital the upper hand, which implies that Prides Capital believes the stock price will eventually appreciate.
Having Humble lower his shareholder power at the firm may actually be a good idea. eDiets has been lackluster for the past few years, and it certainly needs new ideas. eDiets currently has a lot on its plate, which could prove a managerial challenge. In less than a year, the company has begun selling food products and developing private-label health programs for clients, even as it struggles with an eroding subscriber base.
But with about a 38% ownership stake in the firm, Prides Capital certainly has a lot of incentive to improve shareholder value. And in contrast to eDiets' typical plodding ways, the company is at least now trying to make things happen.
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Fool contributor Tom Taulli does not own shares mentioned in this article.
