The Lure of Love
Every holiday season, consumers are prodded to give the perfect gift to their loved ones. And it isn’t just major holidays, birthdays, and anniversaries, there are bunch of “holidays” that explicitly push the heart strings like mothers day, fathers day, and valentines day.
While all retailers have become experts at selling consumers on the need to give physical gifts, there are a few that actually touch the concept of love more closely. Since this often illusive and ethereal concept is so important, investors should consider investing directly in these love machines:
The Perfect Match (.com)
IAC/InterActiveCorp (NASDAQ:IACI) is a web content and subscription company. It owns such web brands as Citysearch, CollegeHumor, and Ask.com. Its collection of sites is a mix of advertising supported content and subscription services. The company has two broad growth avenues, buying old brands that it believes it can resuscitate and buying growing brands that it thinks compliment and will be complimented by its brand network.
One of the company’s core offerings is dating services, led by Match.com. However, Match is only one of the company’s “personals” services. It also owns Chemistry.com, Meetic, OkCupid, and PeopleMedia. Dating sites are the second largest division in the company after search, representing 25% of the top line in the first quarter. This group, however, provided almost half of the company’s operating income in that quarter.
A series of divestitures materially altered the company’s makeup a few years ago, but the top line has been growing nicely since that time. While IAC/InterActiveCorp (NASDAQ:IACI)’s dating sites aren’t the largest part of the company, they are vital to the company’s future. With nearly $200 million in revenues in the first quarter alone, this business is big and growing steadily via organic growth and acquisitions. IAC/InterActiveCorp (NASDAQ:IACI)’s recently initiated dividend adds allure to the stock. Though it isn’t exactly a “cheap date,” the 2% yield is notable for a web company.
Flowers
1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) has a strong brand image online and, as the company’s name suggests, over the phone. Sending flowers is an age old way of saying everything from I love you to I’m sorry. The company also has a notable gift basket business, representing about a third of the top line.
Although the deep 2007 to 2009 recession took a toll on the company’s top and bottom lines, both have since begun to recover. While earnings have historically been something of a moving target, the top line is still well below pre-recession levels. With the bottom line back in the black and the top line growing again, however, the stock likely has some upside potential.
Supporting the top line will be overseas expansion, the introduction of a key chocolate brand into new domestic regions, and the recent launch of a “floral” fruit product. The company ended the first quarter (technically its fiscal third quarter) with no long term debt, so it has plenty of firepower to push these growth initiatives. Although the stock has doubled in the past few months, momentum investors might still find a lot to like here.
Diamonds are Forever
Blue Nile Inc (NASDAQ:NILE) is one of the most prominent online jewelry sites, with a particular focus on diamonds and engagement rings. The company shook up the diamond world by moving it online in a big way, creating clarity in a largely opaque business. That disruptive image made the company something of a market darling in the middle of the last decade, with its shares running up to the $100 mark.
After reality set in, however, the stock’s price fell sharply. It now trades hands at around $30 or so. That said, the company’s top line dipped only slightly during the recent recession and revenues are now above where they were leading into the economic slump. Despite the fact that Blue Nile Inc (NASDAQ:NILE) sells clear non-necessities, it’s bottom line stayed in the black throughout the recession. That’s a statement to the strength of the company’s business model.
Diamonds and the metals used to display them (gold, platinum, and silver) are commodities, so costs can vary dramatically over time. With metal prices at elevated levels, though off from recent highs, the bottom line has been under some pressure. Those input costs, however, eventually get passed on to customers. The company also uses a unique model whereby it doesn’t actually buy diamonds until they are sold, which helps to keep costs down.
With a good brand name and solid sales momentum, this could be a long-term play for growth investors.
Love is in the Air
The three companies above all directly touch the concept of “love.” While vague in concept, it is a great niche in the business world. Blue Nile Inc (NASDAQ:NILE) has a bit of turnaround appeal, as the market has clearly taken a new view of its growth prospects. That said, they remain solid. IAC/InterActiveCorp (NASDAQ:IACI) and 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) are both more dear at the moment, but that doesn’t mean they should appeal to growth and momentum types.
The article The Art Of Selling Love originally appeared on Fool.com and is written by Reuben Brewer.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Blue Nile. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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