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Tackling teen market proves difficult

While teen-focused sites continue to grow their audiences, analysts doubt whether they have the capability to grow sales fast enough to meet Wall Street expectations.

Dot-com companies trying to make money by catering to teenagers are facing some growing pains.

While teen-focused sites such as Snowball.com, Alloy.com and Bolt.com continue to grow their audiences, analysts doubt whether they have the capability to grow sales fast enough to meet Wall Street expectations.

Watch CNET TV News this weekend "Teenagers have less disposable cash than an adult," Keenan Vision analyst Vernon Keenan said. "It seems likely that these sites are going to have a hard time extracting money from their audience."

Snowball.com is planning to push through its awkward phase with a public offering. The San Francisco-based company said today that it plans to sell 6.25 million shares, or 16.7 percent of the company, priced between $10 and $12 each. Through the offering, it could raise more than $62 million.

But investors are less than enthused about the online teen market. Alloy, which began publicly trading in May, has seen a high of about $23 and is now hovering around its initial asking price of $15.

Many are dubious about the prospects of catering to consumers who lack access to their own credit cards. Because most teens have little or no income of their own and by law can't own a credit card, teenage shoppers are severely limited in how much and what they buy.

Keenan said that while many of the teen sites excel at attracting audiences with content, they must find ways to turn that traffic into cash. "How far can a Net enterprise go without generating revenue directly. They need to do more than inform and entertain their viewers--they need to extract cash directly," Keenan said.

Nevertheless, teenagers are a powerful buying group in the United States, worth an estimated $141 billion last year. According to Forrester Research, about 12.4 million Internet users are between the ages of 16 and 22 years. This latest generation of teens, dubbed generation Y, reportedly spent about $2 billion at virtual stores last year.

"Today's teens are the richest in a long time," said Lynne Fox, a spokeswoman for the San Francisco-based Snowball.com. "They will continue to grow and spend."

Fox added: "The most important thing about this group is that they are getting their first branding experiences on the Web. They have integrated the Net so much into their lifestyle it doesn't take a lot for them embrace it."