BOSTON – It was early Wednesday evening when Carmen Electra called.
She cooed a sultry hello. She started to talk about dating. I quickly pinched myself to make sure I wasn't dreaming.
And then, the former "Baywatch" babe said two words that really turned me on: "publicly traded."
A few seconds later, it was all over. When Carmen's pitch for a new online-dating service finished, the pre-recorded message cut off, leaving me all hot and bothered — the way I usually get when I come in contact with a Stupid Investment of the Week.
Luvoo.com is a dating Web site that says it combines modern matchmaking methods — science and statistics — with old-fashioned face-to-face meetings to determine compatibility. But the site's current focus seems to be on its stock; the most prominent feature is a bad head shot of Electra over the words "Newly Publicly Traded!"
Actually, Electra's choice of words may be the first danger sign. It's not that there aren't publicly traded companies trying to rule the dating world; it's just that you're seeing a scary movie when Electra includes a company's trading status in a talk about matchmaking. That doesn't happen without a script.
Personally, I wondered why Carmen and Luvoo were trying to hook up with me.
Aside from being happily married for more than two decades to the most patient and understanding woman in America, I'm not really Carmen's type (she doesn't seem drawn to heavyset, pasty guys without tattoos). Chasing down silly investment ideas, however, has put me on the mailing and calling lists for a lot of so-called investor-relations firms that pump up penny stocks; Carmen's phone call wasn't about dating so much as gold digging.
Stupid Investment of the Week showcases the conditions and characteristics that make an investment less than ideal for the average consumer, and is done in the hope that showcasing danger in one situation will make it easier for investors to root out elsewhere. While obviously not a purchase recommendation, neither is this column intended as an automatic sell signal; in the case of Luvoo, however, the company only went public about two weeks ago, so potential for harm from walking away is almost certainly small.
Luvoo trades on Pink Sheets, which is a centralized quotation service that collects and distributes market-maker prices for securities traded in the over-the-counter market. While there are many fine companies that trade on pinks — and plenty of investors who profit from trading in these issues — they are not the domain for average investors. Many firms on Pink Sheets do not file regulatory paperwork with the Securities and Exchange Commission, and Luvoo is so new that investors won't find any meaningful numbers; there is no balance sheet to analyze.
So then it's time to look at the business model and see if it works.
It's hard to divine much about how the company intends to make money — Luvoo officials did not return my calls Thursday, and Electra's representatives did not return e-mails requesting information on Carmen's relationship with Luvoo. The site, with its jumbo headshot of Electra, has few details on the business model.
But the firm has issued a press release virtually every day since it went public June 9, and those say that Luvoo's "strategy for growth is through celebrity endorsement, aggressive large scale advertising, affiliate business opportunities and patent pending concepts and technology such as 'The Luvoo Dating Card,' 'Verified Member' and 'Instant Notifier.' " (In addition to Electra, the company has hooked up with comedian Pauly Shore; there's no word about whether he is calling potential investors.)
It's tough to figure out why Luvoo would need a patent on the dating cards, which are business cards linked to a Luvoo page about the individual, or the rest.
While some industry watchers see a bevy of press releases as a warning flag, they should not be a deal breaker. New companies often have road shows and labor to promote their shares; plenty of big-name stocks — Amazon.com (AMZN) jumps to mind — went through early times when they seemed to issue a release every time a manager ordered a bagel.
It's the content of Luvoo's press releases that is worrisome. Management talks about being "honored" to be the featured stock at sites like WallStreet7.com and IPOmovers.com. Anyone checking those sites finds out that they are paid marketing conduits; management shouldn't be honored when it paid for the privilege or when it learned that some third party was hiring a promoter to move shares.
The company issued a press release suggesting that Electra's endorsement created a 400 percent surge in subscriptions. Of course, it offered no figures on how many people that signup jump represents. With registration free for at least 12 months, it's not as if those subscribers are contributing directly to Luvoo's bottom line.
"Normally, a legitimate company does not need to put out press releases saying 'Joe Blow — or Joe Blow's Web site — has recommended the stock,' " said John Buckingham, editor of the Prudent Speculator newsletter. "You want a start-up company worrying about building the business more than it worries about pumping up the stock price. If they make things happen in business, the stock price takes care of itself without any hype."
The folks behind Luvoo compare it to the likes of IAC InterActiveCorp (IACI) , owner of Match.com, apparently hoping potential investors will believe the tiny firm can get to the same price point as an established stock. (Interestingly, they ignore Traffix (TRFX) , which owns Imatchup.com, incorrectly stating that Luvoo is the third online dating service that trades publicly.) But IACI is a diversified company that gets a five-star rating from Morningstar — and has profits, growth and a decent balance sheet.
There's no telling if Luvoo has any of those things, or if it ever will. That means that the stock will never be a match for most average investors, no matter how sexy it sounds when Carmen Electra talks about it.