Dot-Com's Low Overhead, Database Contribute to Profit. (Wall Street West).

As perceived investments, dot-coms are deader than Milli Vanilli. But Los Angees-based Web retailer eUniverse Inc., subject of a favorable profile in The New York Times, is proving that there is life left in the Internet game.

eUniverse is different from most Web stories, no doubt there: It makes money. Indeed, two weeks ago it jazzed up its third quarter earnings estimates to seven cents a share from five cents. Chairman and founder Brad Greenspan, 28, said last week that for the three month-period ending Dec. 31 he expects net income of $1.6 million on $9.3 million in revenues.

eUniverse runs a collection of Web sites that includes justsaywow.com and send4fun.com, and also sends out e-mail newsletters, such as the IntelligentX Entertainment Newsletter, which offers daily gossip from the National Enquirer, eOnline and other media sources.

Granted, eUniverse is a microcap. But black ink is rare in Web-land, at any size. How does Greenspan do it? He keeps costs low, serving primarily middle-aged women, and he saves every e-mail address he ever came across.

Among other services, Greenspan offers online greeting cards, a type of limited health insurance, and a diet service. A key Greenspan tenet is to sign people up for services that bill on monthly or quarterly cycles. "You see AOL, which is trying to increase its take from customers from $19.95 a month to $90, by offering many other services, such as music subscriptions," said Greenspan. "We are trying to do the same thing."

The eUniverse network of sites has become the 15th largest service on the Internet, with 18 million visitors in November, according to Nielsen/NetRatings. Under contract, Greenspan sends out ads to his list of 40 million e-mail addresses (he says he sends out more than one billion a week), and runs banner ads on his Web sites.

Leveraging his large database, Greenspan recently started an online matchmaking outfit, which charges men a few bucks to send e-mails to women who have posted men-wanted notices. (Women post for free).

eUniverse stock has had a good run of late, rising from $2 a share in October to more than $5 in trading last week. Almost all of the run-up came before the Times piece on Dec. 17. "Actually, I didn't get a lot of calls on the Times profile," Greenspan said. The stock only moved 30 cents. "I don't think you would call that a pop."

Risk Averse 

Corporate governance and disclosure today ought to be better than they were, say, 20 or 30 years ago. After all, board seats are no longer won by having the right country club memberships. Plus, the SEC is more professional, and an active securities bar vets the industry for shareholder losses that might have had nefarious roots.

But some veteran bond investors beg to differ with the prevailing view that Wall Street is a straighter gig nowadays, and that is one reason why corporate bonds trade at interest rates that, adjusted for inflation, are still very high, historically speaking. Investment-grade bonds traded last week at between 6 percent and 7 percent.

"Take a look at an Enron. Disclosure is actually weaker. There is more use of off-balance sheet items; that has gotten worse; said Jeff Rollert, managing partner at ALM Advisors, a bond management shop in Pasadena.

In the Enron case, of course, certain debts were not disclosed publicly, until too late for shareholders and bondholders. Another growing sore spot, said Rollert: Public companies are investing pension-fund money into the stock market, recording gains as profits -- but possibly leaving liabilities underfunded if the stock market moves in the wrong direction. "The human resource departments have been turned into profit centers," said Rollert.

Bond buyers tend to be a risk-averse lot. If corporate bonds, even highly rated bonds, have a few booby-traps sprinkled about, then bond buyers will correspondingly charge more for their loans, suggested Rollert, who finds himself looking for financial land mines buried in disclosure documents.

Trust in capital markets -- and trust in those who report to capital markets -- would help budge interest rates down in a fundamental way, said Rollert. "But events like Enron do not build that sort of trust."

The Hedging Game

The history of hedge funds is one of ying and yang, or one of seeking security or bounty, said Robert "Reg" Gipson, president of Century City-based Alpha Analytics Group, a money management shop. By the way, Gipson's large-cap value fund was ranked No. 1 in the country last week by Morningstar, the mutual fund rating service, for the three-year period ended in November.

"At first, hedging was just a way to reduce risk," recalled Gipson, who plans to use various hedging techniques in upcoming product offerings. Money managers could go long and short on the stock market, or a selection of stocks, hoping to lock in some returns (in a bull market) while cutting downside risks.

But then devil temptation plunged his pitchfork into the money pot. If they could develop a high degree of assurance they would make some returns, hedge fund operators reasoned, then why not leverage up and magnify those returns? Little risk, but nice returns on equity invested.

Of course, this strategy went straight to hell at Long Term Capital Management, the famous hedge-fund collapse that threatened world financial markets in 1998. The problem is that little risk doesn't mean no risk. And when leveraged 50-to-1 or more, a little boo-boo can wipe out total equity, and more.

So now, Gipson is on the forefront of a third wave of hedge fund, which again tries to reduce risk but pull in good returns. In this model, a fund manager takes in $1, then invests in a pool of stocks that tend to go up more than the market in an upswing. The manager also borrows $1 and shorts a pool of stocks that tend to sink deep in market downturns. With the $1 culled by selling stocks short, the manager then banks the money at short-term interest rates.

Extensive back-testing of data suggests this strategy would capture much of a market's upswing, but limit downside risks. In fact, it reduces a fund's volatility, a feature that would attract investors who seek stability, such as pensioners, said Gipson.

Of course, the proof of the pudding is in the real world, as even Gipson will assent. "We would have to run this idea out in the marketplace for a while, to see if it really works," he said.

Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. His new book is "The Pied Pipers of Wall Street: How Analysts Sell You Down the River," published by Bloomberg Press.