The MySpace phenomenon certainly demonstrates that there's an enormous business in the youth market. Unfortunately, another teen company, Alloy (NASDAQ:ALOY), isn't doing quite so spectacularly.
This week, Alloy reported its fourth-quarter results. Revenues increased only 3.3% to $43.2 million. During this time, the company posted a net loss of $23.8 million, or $2.01 per share, which compares to a loss the previous year of $73.8 million, or $6.88 per share. The major reasons for the loss were non-cash special charges, such as for asset impairments and reductions in goodwill because of less-than-successful acquisitions.
Yet the company was still able to generate free cash flow of $2.2 million during the fourth quarter. The company has $39.6 million in the bank.
Essentially, Alloy is a New Age marketing company that focuses on the Generation Y demographic, which includes 60 million boys and girls in the U.S. between the ages of 10 and 24. The company helps clients with marketing campaigns by using a variety of channels, such as direct mail catalogs, college and high school newspapers, websites, display media boards, college guides, and promotional events.
Ironically, Alloy missed the biggest phenomenon in its market: online social networking. Of course, the killer app is MySpace, which has a staggering number of monthly page views (23.5 billion) and could eventually exceed Yahoo!'s (NASDAQ:YHOO) base.
However, in late March, Alloy announced its purchase of Sconex, which is a social networking site focused on the high school market. During the past six months, there has been a threefold increase in visitors, although Alloy hasn't disclosed the user count. In fact, users spend an average of one hour per day on the site, which indicates that there's considerable value and stickiness there.
But so far, MySpace is still the place for social networking. Moreover, Alloy faces fierce competition from the likes of Google (NASDAQ:GOOG), Yahoo!, and Microsoft (NASDAQ:MSFT) as they all try to get a piece of this market. A small company like Alloy faces a huge challenge in building a successful social network site. But if Alloy can pull it off, its marketing channels could have much greater relevance -- along with a prominent distribution outlet.
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Fool contributor Tom Taulli does not own shares mentioned in this article.
