How to Read a 10Q: IVillage
Posted Thu Apr 19 11:16:42 2001 by sbaldwin |
By Steve Gilliard
Source Document:
http://www.sec.gov/Archives/edgar/data/1074767/0001125282-01-001329.txt
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IVillage has lost $384.3 million since it began operation in 1995. It
has lost $351 million of that sum since 1998. This is the largest
single loss of any dotcom and could go higher. Since they are a public
company, we can analyze how they lost this money. The magic of SEC
filings is that they are intensely detailed. While not telling the
whole story, what they do show is pretty fascinating
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Section 1
iVillage has derived a significant amount of its revenues to date
from the sale of sponsorships and advertisements. For the years ended
December 31, 2000 and 1999 sponsorship and advertising revenues
represented 92% and 95%, respectively, of iVillage's revenues.
iVillage's strategy is focused in part on generating a majority of
its advertising revenues from sponsors and merchants who seek a
cost-effective means to reach women online.
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English-the falloff in ad revenues has hurt iVillage in ways that have
killed other dotcoms. One can call this the dotcom which will not die.
The rate of ad revenue reliance is scary high. I guess they can still
reach some markets.
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During the years ended December 31, 2000 and 1999, iVillage's five
largest advertisers accounted for approximately 23% and 20%,
respectively, of its total revenues. At December 31, 2000, Ford Motor
Media accounted for approximately 11% of the net accounts receivable,
and at December 31, 1999, no advertiser accounted for more than 10% of
the net accounts receivable.
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They are extremely vulnerable to an ad withdrawal from any major company. Ford alone could sink them.
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In November 1998, iVillage entered into an advertising and
promotional agreement with NBC pursuant to which NBC promotes
iVillage.com on television, primarily during prime-time programs, as
well as through its Web sites. ... The revised terms require iVillage
to purchase approximately $11.6 million of advertising or promotional
spots between January 30, 2001 and December 31, 2002, with $3.0 million
of advertising or promotional spots being telecast during the year 2001
and approximately $8.6 million during the year 2002.
Joint Venture and International License Arrangements
iVillage has entered into the following joint venture and international license arrangements:
o Cooperative Beauty Ventures, LLC - iVillage and Unilever have
formed, through a joint venture arrangement, an independently managed
company, Cooperative Beauty Ventures, LLC, to provide women with a
focused community, an array of interactive, customized online services,
beauty and personal care products and personalized product
recommendations. iVillage presently owns 80.1% of the venture and
Unilever owns the remaining 19.9%. iVillage, over the twenty-year term
of the venture, is obligated to fund the ongoing business and
operations of the venture, subject to a maximum funding obligation of
$7.0 million. .... Also, under certain circumstances, Unilever can
exercise a "call" option to purchase a portion of iVillage's membership
interest in the venture for fair market value, up to a limit of 50% of
the ownership of the venture. During the year ended 2000, iVillage
recognized losses from the joint venture of approximately $0.4 million.
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Why would they agree to this kind of outrageous drain on resources? Neither deal seems like a particularly good one.
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Marketing and Public Relations
iVillage employs a variety of methods to promote the iVillage.com
brand and to attract traffic and new members,.... iVillage's marketing
department consisted of 30 marketing professionals as of December 31,
2000.
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Why? 30 people to market a website?. That's 10 percent of their staff. That seems oddly excessive.
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Human Resources
As of February 20, 2001, iVillage employed 309 full-time employees,
of whom 96 were in sales and marketing, 85 were in editorial and
community, 53 were in administration and customer service, and 75 were
in technology, operations and support. ... None of iVillage's current
employees are represented by a labor union or is the subject of a
collective bargaining agreement. iVillage believes that relations with
its employees are good.
| OK,
let's break this down. Nearly 1/3rd of their staff is sales and
marketing, yet the site relies upon 5 major advertisers for a quarter
of their ad revenue, which is pretty much the bulk of their income. 85
are in editorial, more than works in the Daily News and Newsday New
York city rooms. Yet as anyone has seen, their content is mostly
community generated and/or limited to short articles. Most major
publications have less than 85 reporters and editors. They have 53
admin and customer service people? Why? The only logical number is the
75 for tech support. They also seem to think that having no union is a
good thing. Well, layoffs may prove something different.
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Securities Purchase Agreement
Pursuant to the securities purchase agreement, Hearst
Communications has agreed to purchase up to 9,324,000 shares of
iVillage common stock and a warrant (with an exercise price of $0.01
per share) to purchase up to 2,100,000 shares of iVillage common stock
for an aggregate purchase price of up to $20,000,000
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Worth $1.5m at their .73 share price. Not much of a lifeline there.
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Revenues
Revenues were $76.4 million for the year ended December 31, 2000,
which represents an increase of 109% when compared with 1999. The
increase in revenues was primarily due to iVillage's ability to
generate significantly higher sponsorship and advertising revenues
during 2000 and the benefit of receiving revenues from Lamaze
Publishing and the Newborn Channel for the entire 2000 period.
Sponsorship, advertising and other revenues were $69.9 million for the
year ended December 31, 2000, compared to $35.0 million for 1999.
| While
revenues have climbed, so have expenses. A company in this area could
have two things, solid content and a serious profit. This company has a
logistical tail which rivals most print magazines.
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Operating Expenses
Editorial, Product Development and Technology. Editorial, product
development and technology expenses consist primarily of payroll and
related expenses for the editorial, technology, Web site design and
production staffs, the cost of communications, related expenditures
necessary to support iVillage's Web sites, software development,
technology and support operations, and an allocation of facility
expenses, which is based on the number of personnel. Editorial, product
development and technology expenses for the year ended December 31,
2000 were approximately $35.3 million, or 46% of total revenues.
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Why? This is a hefty budget for editorial. Hefty, as in very large and makes no sense. This seems like a lot of wasted money.
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Sales and Marketing. Sales and marketing expenses consist primarily
of costs related to distribution agreements, payroll and related
expenses for sales and marketing personnel, commissions, advertising
and other marketing- related expenses, and an allocation of facility
expenses, which is based on the number of personnel. Sales and
marketing expenses for the year ended December 31, 2000 were
approximately $54.1 million, or 71% of total revenues.
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Huh? Losing millions and driving traffic with TV ads.
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Included in sales and marketing expenses are barter transactions,
which amounted to approximately 7% of total sales and marketing costs
during the year ended December 31, 2000, compared to 5% of total sales
and marketing costs during 1999.
General and Administrative. General and administrative expenses
consist primarily of payroll and related expenses and related costs for
general corporate overhead, including executive management, finance,
allocated facilities, and legal and other professional fees. General
and administrative expenses for the year ended December 31, 2000 were
$22.6 million, or 30% of total revenues.
iVillage recorded a net loss of $191.4 million, or $6.45 per share,
for the year ended December 31, 2000. For 1999, iVillage recorded a net
loss of $116.6 million, or $5.58 per share. The net loss for the year
ended December 31, 2000 includes one-time expenses totaling
approximately $118.7 million. These one-time expenses consisted of a
charge for the impairment of goodwill of approximately $98.1 million in
the third quarter of 2000, the write-down of marketable and
non-marketable investments of approximately $8.4 million ($0.3 million
in the fourth quarter of 2000 and $8.1 million in the second quarter of
2000), whose decline was considered other than temporary, the
write-down of a note receivable of approximately $5.1
million in the third quarter of 2000, and an estimated loss on the sale
of iBaby, Inc. assets of $7.1 million. The net loss for the year ended
December 31, 1999 includes a deemed dividend of $23.6 million incurred
as a result of the difference between the purchase price of the series
E convertible preferred stock sold to NBC during the first quarter of
1999, and the fair market value on the date of issuance.
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These geniuses even lost money on selling iBaby. How?
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Liquidity and Capital Resources
Until iVillage's initial public offering in March 1999, which
raised net proceeds of $91.4 million, iVillage financed its operations
primarily through the private placement of its convertible preferred
stock. On November 3, 1999, iVillage consummated a secondary offering
of 2.7 million shares of common stock and received net proceeds of
$70.8 million. As of December 31, 2000, iVillage had approximately
$58.2 million in cash, cash equivalents and restricted cash.
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This is a company which lost $191 million in ONE YEAR. How are they still operating? Why?
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In March 2000, iVillage entered into a fifteen-year lease for
approximately 105,000 square feet at 500-512 Seventh Avenue in which
iVillage has recently consolidated its New York City operations. The
financial commitment for rent at this office space is approximately
$4.7 million for the next 12 months. Pursuant to the terms of the
lease, iVillage received approximately $3.8 million in January 2001 and
anticipates receiving another approximately $1.5 million for
reimbursement of certain construction expenses. iVillage also expects
to spend an additional approximately $2.1 million to complete the
construction project.
| You're
losing money, the market is headed south, so what do you do? Sink $5m
into rent and $2m into construction. Yeah, this deal makes sense, if
you can't read. If I was the landlord, I'd love to have them sink all
that money into a newly wired space. I'd be ecstatic because it will be
rented at a nice fat profit after iVillage crashes into the sea.
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iVillage has not achieved profitability and has recent and anticipated continuing losses.
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In the legally mandated statements department.
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iVillage has not achieved profitability and expects to continue to
incur operating losses for the foreseeable future. ... As of December
31, 2000, iVillage's accumulated deficit was $384.3 million. iVillage
expects to continue to incur significant operating and capital
expenditures and, as a result, it will need to generate significant
revenues to achieve and maintain profitability.
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Yeah. I don't see that happening any time...ever.
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Compensation
| OK,
here's a question. Your company is losing hundreds of millions in one
year. What in the hell do get a bonus for? Why are you getting a bonus?
The shareholders are being abused like Russian orphans. Has anyone read
iVillage? I have. Why is Nancy Evans getting a bonus? Here's a radical
statement. These people are incompetent. They do not deserve bonuses.
Their company is losing money, not a little money, a LOT of money, $191
million in one year. Why is there a bonus clause in their contract? Is
performance an ancient standard? |
(See Shareholder Table section of report)
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Funny about clubs. The directors own a quarter of all the good stock. Gee, even if they sell it, they still come out ahead
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Certain Relationships and Related Transactions
On June 5, 1998, Candice Carpenter executed a promissory note in
favor of iVillage for borrowings up to a maximum principal amount of
$500,000, of which $500,000 was outstanding at December 31, 2000.
Subject to prepayment or acceleration, any loans made to Ms. Carpenter
under the note mature on December 31, 2002. Borrowings made under the
note bear interest at 5.58% per annum and are payable on an annual
basis on December 31 of each year commencing on December 31, 1998. The
note is collateralized by a pledge by Ms. Carpenter of 20,000 shares of
common stock. Pursuant to an agreement with iVillage, Ms. Carpenter has
resigned as Chief Executive Officer of iVillage as of August 1, 2000
and from iVillage's Board of Directors as of April 1, 2001.
Wow.
She borrowed $500K and has not paid back a single dime of principle ,
and the interest is pretty low. Let's go to the bank and propose that
we all get $500K loans and then propose we pay only the interest back
every year. This is not a mortgage either, but a personal loan secured
by stock. You're not getting one of those from YOUR bank.
She could do this forever. She pays back $27K a year, forever. Now,
you want a home loan? You're gonna have to pay 8.00 interest, but you
get a 2 percent break for the first 6 months from Citibank. The average
for a 30 year mortgage in NY is around 6.7 with points. So let's do the
math, with a 500K loan, you'd have to pay $38,418.78 per year. The
current national average is 7.10 percent.
So how does she pay it back? Put in a one year CD, for example.
Netbank pays 5.13, Citibank, 3.83 At Netbank, she gets back 25,650. At
Citibank, she gets $19,150. Seems she's only paying a few grand back
every year to have access to 500K. On top of a $400,000 salary and $90K
bonus, plus 717,640 in stock worth $523,877.20 at .73 cents a share.
In May, she sold 104,166 and made $740,954. In September, she sold
175,000 shares in one week worth $658,950. Together, she sold stock
worth nearly 1.4 million dollars. Any sane person could conclude that
iVillage has not only made Carpenter a rich woman, but was a cash cow
for her. Her executive compensation was $1.3 million between 1998 and
2000. Meanwhile her company is leaking cash like a beer can at a target
range and on top of that, she got a virtually interest free $500K loan.
Why interest free? Because if she banked it in a CD, the most
investment tool around, the interest was covered.
Think about iVillage's compensation structure and the lavish,
because it is, compensation their obviously inept executives got. They
were paid $3,296,903 in salary and $1,264,319 in bonuses from 1998 to
2000, while the company lost $384 m. Nearly $4.5 million in salary and
bonuses to executives in a company which has had repeated layoffs, lost
$384 million since its inception, and has a share price worth $.73.
It's one thing to reward successful execs for a good job, but this is
ludicrous. I haven't even detailed the insider deals of the other top
executives executives, but the amounts go into the millions of dollars.
IVillage, which will never make a dime, has made it's officers
multimillionaires while screwing over investors. It may be legal, but
this is wrong.
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(Note: A complete, annotated iVillage 10Q report is available for viewing by clicking here. This document will launch a new browser window). A text version is also available here.
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