Brutal Business in E-Cards; Despite Holiday Volume: AG Interactive Takes $161 Million Charge

This story was written by Rafat Ali.
Judging by the amount of "Season's Greetings" holiday and New Year's e-cards that I have been getting, the activity level and hence possibly the business of online e-cards should be high. But then I hadn't opened a single e-cards e-mail, and that explains it. No one cares for digital greetings, most of all ads around it, and more importantly, no one's paying to send customized ones these days. That's reflected in the brutal fiscal Q308 earnings for Cleveland, OH-based American Greetings (NYSE: AM). Overall,  it has losses of $193.3 million, compared to a profit of $29 million in the year-earlier period. Revenues declined to $454.1 million from $485.8 million.

The international business (in UK) and online AG Interactive have been affected pretty badly as well. As a result, for its online unit, it is taking a $160.8 million goodwill and intangible asset impairment charge, which includes all of the goodwill for AG Interactive. It explains the decline in online business as such, in an SEC filing:

"Within the AG Interactive segment, there were the following three primary indicators:

1. A substantial decline in advertising revenues;
2. The e-commerce businesses not growing as anticipated; and
3. The Company's belief that the segment's current long-term cash flow forecasts may now be unattainable based on the lengthening and deepening economic deterioration."

Does this mean that it is writing off two online photo acquisitions it did in October last year? It bought Webshots from CNET for $45 million, and Photoworks for $26.5 million.

Also last week, the company announced about 275 layoffs, with a pre-tax severance charge of $7.0 million; thats 1.5 percent of its employee base.


By Rafat Ali
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