Media pros say that young people between the ages of 10 and 24 represent a lucrative market. Alloy (NASDAQ:ALOY), a marketing-services company that helps companies target young consumers, has spent years focused on that demographic -- but it still can't seem to turn a profit.
In the first quarter, the company's sales increased 4% to $44.8 million. Its net loss was $1.2 million, or $0.10 per share -- a big improvement from the net loss of $16.3 million, or $1.52 per share, in the year-ago period. Excluding expense for stock options, Alloy would have had a net loss of $700,000, or $0.06 per share, in the first quarter. Free cash flow for the first quarter was $400,000, a 58% improvement from last year.
Two of Alloy's three divisions are dragging down the overall performance of the firm. The worst performer is Promotion, which saw a 12% decline in revenues to $17.3 million. The division has clients like Qwest (NYSE:Q), Subway, and Verizon (NYSE:VZ) that want to market to the youth market. Alloy distributes their product samples to schools, bookstores, dining halls and student organizations. The Promotion division also sells products like hall linens, diploma frames, residence-hall carpets, and care packages. Because of the large size of client engagements, Promotion's revenue can be lumpy, as it was in the first quarter. Part of the decrease was also attributed to a sponsor that dropped a campaign.
Alloy's Placement division experienced a 1% drop in revenues, to $14.5 million. Here, Alloy helps Fortune 500 companies target young people by advertising in newspapers for colleges, high schools, and military bases.
The growth engine for Alloy as a whole is the Media division, which had a 44% increase in revenues to $13.1 million. The Media division includes magazines, books, television series, and even motion pictures. Other segments include direct mail and email; web sites (such as www.privatecolleges.com, www.acuinfo.com, and www.careersandcolleges.com); and college and scholarship databases.
But even the Media division has its problems. Alloy has a footprint in media outlets that students are trending away from: magazines, books, and even television. Instead, the younger generation is moving onto the Net, where social phenomena such as News Corp.'s (NYSE:NWS) MySpace.com are causing a stir.
To remedy this lack, Alloy recently purchased Sconex, a social networking site. However, this site is still fairly small, and it lacks any significant brand recognition. I find it hugely ironic that Alloy, with its huge clients paying the firm big bucks for its advice, missed the boat completely on the beginning of the social-networking phenomenon.
Alloy's working in an undeniably attractive market. It's estimated that roughly 35% of the U.S. population is under 24, and the annual income of those aged eight to 21 is an estimated $233 billion. Savvy companies like MySpace.com seem to understand how to monetize that market, but it appears that Alloy is still trying to figure it out.
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Fool contributor Tom Taulli does not own shares mentioned in this article.
