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Technology Stocks : XO Group Inc

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From: Glenn Petersen3/7/2006 7:04:33 PM
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NBC purchases iVillage and Business Week speculates that KNOT may be next.

Medium-sized sites such as theknot.com (KNOT ), an online wedding planner, will be much in demand because they dominate niches on the Web.

MARCH 7, 2006

News Analysis

By Steve Rosenbush

NBC Universal Takes an iVillage

The GE unit's purchase shows growing acceptance of the Net to distribute mainstream information and entertainment. Who are the next targets?


General Electric's (GE ) NBC Universal unit joined the big media hunt for online assets on March 6, announcing that it would pay $600 million to acquire iVillage (IVIL ), the pioneering Internet company geared toward women.

Speculation about an acquisition of iVillage has been underway since last year, and NBC Universal was by no means alone in expressing an interest (see BW Online, 8/29/05, "Internet Mergers: Who's Next?"). Other suitors included The New York Times (NYT ), according to one person familiar with the matter. The Times advanced its Internet operations last year with the $410 million cash acquisition of About.com. News Corp.'s (NWS ) Fox Interactive Media unit also looked at iVillage, according to division President Ross Levinsohn.

"GAME OF SCALE." Launched in the mid-1990s, iVillage.com has aggregated a collection of Web sites including iVillage.com, Women.com, gURL.com, Astrology.com, Substance.com, Promotions.com, Healthology.com, and GardenWeb.com. It competes with Lifetime, which is owned by Disney (DIS ) and Hearst, in the market for Web sites aimed at women.

Investors liked the deal. At market close on March 6, shares of iVillage were up 38 cents, to $8.36, while GE stock rose 4 cents, to $33.10.

It's not hard to see why. With annual revenue of about $100 million, the company is one of the few Internet properties that can actually contribute to growth. That's why it commanded a 6.5% premium over its pre-deal valuation. "This is still a game of scale for most people, and iVillage is one of the few Internet companies that have scale," Levinsohn says.

CONVERGENCE STRATEGY. The company didn't align that closely with the core audience of Fox Interactive Media, which acquired the edgy Internet upstart MySpace last year for $580 million, Levinsohn says.

But iVillage is key not just because of its near-term growth prospects. The deal reflects growing acceptance of the Web as a vehicle for the distribution of news, media, and entertainment, rivaling print and TV. That convergence already is underway at iVillage.

"iVillage has done a good job of incorporating video into its sites, creating a good environment for advertisers of packaged goods and beauty products," says Troy Young, executive vice-president and chief experience architect at Organic, an online advertising and consulting firm.

DEEP-POCKETED SUITORS. As share prices of Web giants such as Google (GOOG ) pushed the limits, smaller Internet companies with strong niches have seemed more attractive (see BW Online, 11/18/05, "Is Google Flying Too High?"). Analyst Richard Fetyko of JMP Securities upgraded the company last month to a strong buy, saying he expected earnings to be increasingly strong in the coming years, thanks to new services (see BW Online, 2/14/06, "JMP Securities Upgrades iVillage to Strong Buy").

Now that iVillage is snapped up, the question becomes: who's next? Medium-sized sites such as theknot.com (KNOT ), an online wedding planner, will be much in demand because they dominate niches on the Web. Other sites that are attracting attention include tech-news destination CNET (CNET ) and a host of social-networking sites such as www.facebook.com.

Valuations could continue to climb. As the MySpace and iVillage deals showed, big media companies are willing to spend significant amounts of money for sites that give them advantage in the increasingly important world of the Web.

yahoo.businessweek.com
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