Recession Arrives at Alloy, the Agency Behind "Gossip Girl"

Last Updated Jun 5, 2009 10:40 AM EDT

Alloy Media + Marketing's revenues fell 13 percent to $43 million in Q1 2009, led by a 30 percent drop in placement due to declines in college and military newspaper advertising. The company posted a loss of $2.7 million, nearly double its loss a year ago.

It means the recession has arrived at the agency that brought us Gossip Girl and the Sisterhood of the Traveling Pants.

It also indicates that this sunny story in the WSJ back in February -- where the writer hailed Alloy as "an unlikely star," "the hottest teen-oriented property on the Web," and "savvy," -- was not as useful as it might have been. (To give the writer credit, she did mention the across-the-board decline in teen-girl brands and its Conde Nast MySpace failure.)

The yield on Alloy's operating expenses -- a measure of how much revenue the agency's staff generates for every $1 spent on salaries and office costs -- declined to $1.57, down significantly. That means Alloy has not cut its costs to keep them in line with its declining revenues.

On Tuesday's conference call, management said they expected EBITDA to pick up in Q2, but not revenues. Analysts seemed a little confused by that guidance.

The company also claimed its results were hurt by upfront expenses it had to pay that would only generate revenues in Q2. That drew a smart question from one analyst, based on the longstanding notion that companies are supposed to match expenses to revenues within each quarter. (Not doing so is the type of rules violation that the SEC might be interested in.) CFO Joseph Frehe gave this explanation:

We had to expense them as they occured so they were period costs and couldn't be deferred.
The sales breakdown by segment saw promotion revenues hold steady, media revenue declined 7 percent and placement was down 30 percent.