Visit Alloy.com and enter the world of glittery T-shirts and boy trouble for teen-agers. But look past the U.S. flag muscle tanks, daily horoscope and advice columns. Backing Alloy.com's sales pitch to teen-age girls is Alloy (ALOY) , a multichannel media company that does far more than its flagship Web site suggests.

Alloy is emerging as the leading marketer to Generation Y, the 58 million people between age 10 and 24 who have turned teeny-bopper fashion and music into a mainstream phenomenon. The company not only sells glittery T-shirts to this age group, but also helps advertisers reach them through ads across a wide range of Alloy's online and offline outlets that reach 45 million people.

"We sit between corporate America and the youth market," says Matt Diamond, Alloy's CEO and co-founder. Alloy's three main businesses -- editorial content, mass marketing and retail -- function like middlemen, passing messages and products between teen-agers and corporations.

The River That Runs Through It

The key to Alloy's business is its database of 8.5 million teen-agers who receive the company's direct mailings. In April 2000, only 3.8 million names were on the list, but through acquisitions, key partnerships and word-of-mouth among Gen Yers, this database has been growing rapidly.

More than 25% of the 8.5 million teen-agers buy Alloy merchandise. But Alloy uses the database for more than just a sales tool. The company also receives feedback from teen-agers, communicating their preferences to corporate America. In this role, Alloy tells corporate America what kids really want.

"Our model is to let them focus on themselves," Diamond says. "The content is almost all user-generated. The kids actually vote on the products we sell. Alloy is a reflective brand, like MTV. MTV doesn't tell you what the best pop songs are."

By letting the Gen Y demographic group dictate the trends, Alloy avoids many mistakes. In 1998, KikWear's baggy jeans were one of Alloy's most popular items. But in 1999, Diamond says Alloy didn't sell a single pair of baggy jeans. They'd already gone out of style.

Alloy owns a wide array of marketing and advertising outlets, gained mostly through acquisitions. The company has three major catalogs:

Dan's Comp

,

Alloy

and

CCS

.

Dan's Comp

and

danscomp.com target BMX bicycle fans, while

CCS

and

ccs.com target skateboarders. Indeed,

CCS

is so popular some call it the "bible of skateboarding."

Alloy

and alloy.com target fashion-conscious teen-age girls.

According to the Census Bureau, Generation Y will increase 19.5% faster than the overall population until 2010, and it accounted for $250 billion in disposable income in 2000. Alloy is capitalizing on that income by selling unique brands that usually can't be found at the mall. For example, the company doesn't sell Levi's, but rather Elements and Osiris.

In the third quarter this year, the company's merchandise revenue was $31.8 million, up 31% year over year, thanks to the strong performance of

Alloy

and

CCS

. The company says that

Dan's Comp

, purchased in October, will add to that number in the future.

Going Back to Schools

Alloy has extended its business beyond those three core catalogs. In April, the company bought Carnegie Communications, adding 30 annual publications devoted to colleges and universities, plus three Web sites, including

privatecolleges.com,

acuinfo.com and

collegeXpress.com.

In July, Alloy bought marketing company Cass Communications and, just a few days ago, snapped up 360Youth, a division of MarketSource, a marketing solutions provider. Through outdoor ads as well as college and high school newspapers, Cass reaches more than 27 million people. 360Youth reaches 40 million Gen Yers through billboards and promotions in college bookstores.

"As of Aug. 1, we had very little in the college space," Diamond says."Then we bought the two largest players. In a matter of two months, we spanages 12 to 24."

Sponsorship and other sources of revenue accounted for $12.7 million in 2001 third-quarter sales, 235% better than the same period a year ago.

But Wait, There's More

As a middleman, Alloy works the marketing scheme both ways. Not only does the company want advertisers to place messages on its Web sites and billboards, and in its catalogs and school newspapers, the company also wants to tell advertisers how to make better ads.

In October, the company launched AlloY-Access reports, a collection of data gleaned from the 8.5 million people in the company's database. The first issue, "The Style File" reported findings on trends in teen-girl fashion and buying habits. More issues are in the works.

Alloy also creates content in which advertisers can place ads. A major part of Alloy's business is its media arm, 17th Street Productions, which publishes books, including the popular

Real Rules for Girls

by Mindy Morgenstern and the Sweet Valley High franchise. 17th Street's books and Alloy.com's content has fueled four TV pilots and two books optioned by movie studios.

The Risks

But Alloy is far from a fairy-tale investment story. It has yet to post a full fiscal-year profit, but expects to record a profit this fiscal year and for each quarter next year.

One of Alloy's biggest liabilities now was its biggest asset two years ago when it went public: a dot-com. "The company did change its name from Alloy.com to Alloy Online," said Kathleen Heaney, an analyst with Brean Murray. "But it was always an online marketer."

Indeed, Alloy is exposed to the paltry Internet advertising market. But Diamond says the company is weathering the poor ad market well because advertisers continue to market the Generation Y demographic. "Those are the last dollars a company wants to cut," he says.

Alloy's stock has increased more than 90% this year, suggesting that it might already have hit its peak. But analysts still tout it. According to Thomson Financial/ First Call, the company has a consensus rating of 1.3. Indeed, the stock closed up 12.8% Friday to $16.50.

Despite its recent run, Alloy's stock is still inexpensive compared with its peers in the Internet software and services sector. It trades at 2.55 times the company's 12-month trailing sales, which is far less than the industry's average of 7.18. The stock trades at a

price-to-book value of 4, which is slightly more than its sector's average of 3.4. But Alloy trades 68 times its cash flow, while the industry average is just 20.4.

Even though Alloy's growth will slow when it runs out of names to add to its database and customers to target, Alloy is currently expanding. Thanks to a recent $30 million private placement of stock, Alloy has the money to purchase more properties.

Heaney thinks that Alloy could eventually log $1 billion in revenue. According to Thomson Financial/First Call, the company is expected to book about $250 million in revenue for calendar year 2001.

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