Alloy Online Inc.
An Excerpt From the Company's Prospectus
Underwriters: BancBoston Robertson Stephens, Volpe Brown Whelan, Dain Rauscher Wessels, Ladenburg
Proposed offering date: May
Proposed stock symbol: ALOY
Company description: Alloy Online is a leading Internet destination providing community, content and commerce to Generation Y, the 56 million boys and girls between the ages of 10 and 24. Alloy is a leading lifestyle brand for this influential generation, which is growing 19.5% faster than the overall U.S. population and accounts for more than $250 billion of annual disposable income. Our Web site, www.alloy.com, is a destination where Generation Y boys and girls can interact, share information, explore compelling and relevant content and shop. Through our Web site, we believe we have created one of the largest and most vibrant Generation Y communities on the Internet. This growing community drives merchandise sales, our principal source of revenues, and positions us to be a leading channel for marketers to efficiently and effectively reach this consumer group.
Generation Y is the first generation to grow up using the Internet as a primary medium for information, entertainment, communication and shopping. We believe, based on industry data, that nearly 65% of Generation Y currently use the Internet and 88% regard the Internet, and specifically online community functions such as chat rooms, as "cool." We created our Web site to meet the unique interests and tastes of this generation. Features of our Web site include:
Community -- we present an appealing environment for Generation Y boys and girls to share their ideas, express their opinions and develop their interests through a variety of free services such as e-mail accounts, personal homepages, chat rooms, interactive advice forums and message boards;
Content -- we deliver continually refreshed and relevant Generation Y content on subjects such as music, relationships, fashion, entertainment, astrology, gossip and sports; and
Commerce -- we market products and services in the major Generation Y spending categories such as apparel, accessories, footwear, cosmetics, music and magazines.
Since inception, we have experienced rapid growth. Our revenues, primarily merchandise sales, have grown from $1.8 million in 1997 to $10.2 million in 1998. Our Web site, due to our unique blend of online services, generated over 17 million page views in February 1999, up from approximately 1.5 million in February 1998. Additionally, we have compiled demographic information from approximately 400,000 users who have registered to receive our weekly electronic magazine, Alloy E-Mag. In August 1997, we introduced our Alloy direct mail catalog to attract additional visitors to our Web site, increase revenues and build recognition for the Alloy brand. During 1999, we expect to mail approximately 20 million catalogs to boys and girls of Generation Y. Through our Web site and catalog distribution, we have developed a proprietary database of approximately two million Generation Y boys and girls, enabling us to effectively market to specific segments of our audience.
Generation Y presents an important opportunity for marketers. Marketers are focusing on Generation Y because of their significant and growing spending power and tendency to carry brand loyalties established at a young age into adulthood. To reach this demographic group, marketers are increasingly looking to the Internet and the Web sites where the boys and girls of Generation Y congregate. To date, we have not focused on generating revenues from sponsorships or advertising sales. However, we believe that our Web site is a valuable channel for marketers seeking to reach our Generation Y community, providing us with significant additional revenue opportunities.
Our objective is to become the leading Generation Y online destination. In order to achieve this objective, we intend to pursue the following strategies:
Maintain Single Brand Focus. We will continue to build Alloy as a Generation Y lifestyle brand for both boys and girls known for compelling community, content and commerce. By promoting our single, unified brand, we maximize the impact of our marketing efforts.
Generate Multiple Online Revenue Streams. We intend to generate multiple online revenue streams by capitalizing on our targeted online community, our proprietary database, our proven direct marketing capabilities and our expertise in marketing to Generation Y.
Strengthen Co-ed Community. We will continue to foster our online community, which appeals to both boys and girls and facilitates dynamic boy-girl interaction. We believe that a strong co-ed focus is critical to creating a successful Generation Y online community and provides us an important competitive advantage.
Continue to Improve User Experience. We will continue to develop community and content features that satisfy the evolving interests and tastes of Generation Y.
Attract Additional Visitors to Our Web Site. We will aggressively market our Web site through our Alloy catalog, Alloy E-Mag and new brand-building campaigns in broadcast, print and online media.
Enhance Web Site and Technology Infrastructure. We will continue to use "best-of-breed," scalable, third-party technologies, hardware and transaction-processing systems to support our expected growth.
Expand Internationally. We intend to pursue the significant opportunities to serve the large and growing Generation Y population internationally.
Risk factors: We were incorporated in January 1996 and did not begin to generate meaningful revenues until August 1997. Accordingly, we have only a limited operating history upon which you can evaluate our business and prospects. You must consider the risks and uncertainties frequently encountered by early stage companies in new and rapidly evolving markets, such as electronic commerce. If we are unsuccessful in addressing these risks and uncertainties, our business, results of operations and financial condition will be materially and adversely affected.
Since our inception in January 1996, we have incurred significant net losses, resulting primarily from costs related to developing our Web site and database of Generation Y names, attracting users to our Web site and establishing the Alloy brand. At January 31, 1999, we had an accumulated deficit of $8.3 million. Because of our plans to invest heavily in marketing and promotion, to hire additional employees, and to enhance our Web site and operating infrastructure, we expect to incur significant net losses for the foreseeable future. We believe these expenditures are necessary to strengthen our brand recognition, attract more users to our Web site and generate greater online revenues. If our revenue growth is slower than we anticipate or our operating expenses exceed our expectations, our losses will be significantly greater. We may never achieve profitability.
Our revenues for the foreseeable future will remain primarily dependent on sales of merchandise appearing in our catalogs and on our Web site, and secondarily on sponsorship and advertising revenues. We cannot forecast with any degree of certainty the number of visitors to our Web site, the extent of our merchandise sales or the amount of sponsorship and advertising revenues.
Our continued success will depend on our ability to keep current with the changing fashion tastes and interests of our Generation Y customers. We must continue to offer merchandise that appeals to their preferences on a timely and affordable basis. If we fail to anticipate, identify or respond to changes in styles, trends or brand preferences of our customers, we are likely to experience reduced revenues from merchandise sales. Moreover, the strength of Alloy as a Generation Y lifestyle brand could be eroded by misjudgments in merchandise selection or a failure to keep our online community and content current with the evolving preferences of our audience. These events would likely reduce the number of visitors to our Web site and limit opportunities for sponsorship and advertising sales. As a consequence of these developments, our business would suffer.
An important component of our business model involves the use of our proprietary lists of catalog requesters and Web site registrants to more effectively target direct marketing messages. We depend upon personal information we collect from our Web site users for data we need to create direct mailing and e-mailing lists, tailor our Web site offerings to the tastes of our Generation Y users and attract marketers to our Web site. We must continuously expand and update our proprietary lists to identify new, prospective Generation Y customers. Names derived from purchased or rented lists may generate lower response rates and, therefore, a lower return on our investment in such lists. We must also continually develop and refine our techniques for segmenting these lists to maximize their usefulness to us and our marketing partners. If we fail to capitalize on these important business assets, our business model will be less successful. In addition, laws or regulations that could impair our ability to collect user names and other information on our Web site may adversely affect our business. For example, a recently enacted federal law limits our ability to collect personal information from Web site visitors who may be under age 13. y |
