By Paul Larson (TMF Parlay)

I think it's human nature for investors to beat themselves up over lost opportunities. For me, I'm still kicking myself for not shorting iVillage late last summer. Even though the stock had lost over half its value, I felt it had a lot farther to fall. For reasons I don't understand, I took a pass on the trade even though I was almost certain iVillage was headed for some rough times. Long story short, the stock has lost another two-thirds of the value since I seriously considered shorting. Bummer for me for not pulling the trigger, and especially a bummer for those who got hoodwinked into buying the stock.

Many of the reasons I didn't like the company back then still apply today. Here are some of the things I see inherently wrong with iVillage.

Women don't need iVillage

Perhaps I'm just a myopic male, but I really don't see the need for a gender-specific portal, especially when the content that is on that portal is fluffier than a Martha Stewart <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MSO)") else Response.Write("(NYSE: MSO)") end if %> throw pillow. Has anyone reading this really taken a serious look at the type of content iVillage is peddling? Last I checked, iVillage was promoting on its main page "20 ways to spice up boring burgers" and "Have fun discovering your signature scent." I tell ya, with that type of content, I hope they beefed up their network servers for all the traffic it will generate!

I don't think I'm the only one who just doesn't see the attraction of iVillage. I asked a half-dozen women in the company's target 25-54 age group what they thought of iVillage, and I couldn't find a single one that had anything good to say about it. (Just making sure my not getting it wasn't a male thing.) I think my wife stated it best when she said, "iVillage makes women look really stupid. We really don't need the type of 'help' they're offering." Amen.

Flawed business model

In my eyes, I see iVillage as a "Jill of all trades, master of none." In other words, if I want content on health, I am going to go to a healthcare specialty site like WebMD <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HLTH)") else Response.Write("(Nasdaq: HLTH)") end if %> or drkoop.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KOOP)") else Response.Write("(Nasdaq: KOOP)") end if %> rather than a generic community site like iVillage's health channel. Same goes for information about personal finance or weddings or travel or just about any other content category iVillage participates in. As they say, content is king (or queen, as the case may be), and iVillage's content is weak relative to the competition.

Moreover, I really don't see any sustainable competitive advantage within iVillage. It does have a fairly sizable community of women, but there's nothing from stopping those community members from choosing to converse at other sites. iVillage is casting a fairly wide net by "targeting" roughly a quarter of the population, and I just don't see how they are going to keep their users from finding the Internet's greener pastures.

Burn, baby, burn

Even if I'm totally off base about the company's qualitative characteristics, the numbers are downright ugly. To be concise, iVillage is burning cash with the best of the doomed Internet companies. Just take a look at this snapshot of the financials:

               Fiscal 1999    Q1 2000  
Sales              $44.6M      $20.8M    
Operating Income  ($97.3M)    ($26.9M)
Net Income       ($116.6M)    ($25.2M)
EPS                ($5.59)     ($0.85)

Notice that even though last quarter the company was able to slightly improve its profit picture, it still managed to spend more than it was able to bring in. Whenever I see a company with a negative net profit margin over 100%, it is quite concerning, especially when the company is well beyond the start-up stage.

The only thing really keeping the company afloat today is the cash it was able to raise in a secondary offering of shares at $28 apiece last fall. At the end of the first quarter the company had roughly $93.2 million in cash and equivalents, yet it burned some $14.3 million in the first quarter alone. If the burn rate continues, the company will be forced to raise cash again, and that either means increased debt or shareholder dilution. And with the stock trading at about 10% of its annual high, the dilution would be brutal.

Management

Management quality is one of the great intangibles in the investing world, and it is also one of the most important. When I look at the upper ranks of iVillage, I just don't get overwhelmed by a feeling of trust.

First, the company has been losing executives left and right. In the last month alone, both the company's CFO and COO have jumped ship for better opportunities. In my book, this is not a good sign from the top. Also not a good sign is the fact that these executive departures are far from the first, and some of the company's former executives have raised questions concerning iVillage's business practices and shady revenue recognition policies.

To close, here we have a company that adds very little value to its customers and has also done nothing but destroy shareholder value since day one. It has banal content, a prodigious cash burn rate, and a management team that has been enshrouded with controversy since the company's founding. Hmm, perhaps I should still consider shorting....

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