iVillage Inc.: iVillage Posts Another Solid Quarter

William S. Morrison | JMP Securities

November 9, 2005

Investment Highlights:

iVillage reported solid third quarter 2005 financial results highlighted by 44% organic revenue growth in online advertising at the iVillage.com property; maintain Market Outperform rating. On the top line, iVillage reported total revenue of $22.6 million, slightly ahead of our $22.0 million forecast. EBITDA of $4.2 million was slightly below our $4.5 million estimate as the company delayed several cost cutting programs. However, management reiterated its full yearEBITDA guidance of $16-17 million, pointing to better than expected profitability during the fourth quarter. We are raising our Street high 2006 EBITDA forecast from $28.6 million to $30.5 million, representing an incremental margin north of 55% for next year. We are also raising our target from $8 to $9 on our upwardly revised cash flow estimates and a slightly higher 2006 EV/EBITDA multiple of 18.5x, up from 17.5x previously.

Rapt expected to impact 4Q05 and 2006 revenue and profitability.
iVillage continues to execute on its business plan of driving organic users and usage higher and improving its inventory management to drive higher effective CPMs across its online network of properties. Management indicated that its deal with Rapt Technologies, which we highlighted in a series of notes last month, is on track to implement during the fourth quarter. While we do not expect the full impact of Rapt to be felt at iVillage until the first half of 2006, the company commented that it may see a modest uplift in revenue during the current quarter from Rapt's process re-engineering recommendations. Users were up 10% sequentially, and page views were up 9% year over year during the third quarter of 2005.

iVillage continues to gain traction with marquee clients.
During the quarter, the company continued to strengthen its relationships with blue-chip, consumer packaged goods companies. Several companies initiated campaigns that utilized new media and added previously unadvertised brands to the roster. Additionally, the company suggested that some of its large clients were allocating one hundred percent of their online advertising budgets to iVillage, underscoring its dominance in reaching the female market.

We are raising our estimates and target from $8 to $9.
Based on the better than expected profitability during the fourth quarter, we are raising our EBITDA forecasts from $28.6 million to $30.5 million for next year. Our new recurring (untaxed) EPS estimate for 2006 is now $0.28, up from $0.26 previously. We derive our new target price using an 18.5x EV/EBITDA multiple against our 2006 estimate, up from 17.5x previously, and 44x our $0.22 fully taxed 2006 FCF/share estimate, up from a multiple of 38x previously.