Is InsWeb - INSW - a value trap?

Online insurace provider InsWeb (ticker: INSW) announced a marketing deal
with AOL on Monday, and its stock spiked from $2.90 at open to an intra-day high
of $3.43. Now the stock is back to below $3, yet the company has $3.66 per share on its balance sheet. Does that make it good value?

Rick Munarriz of The Motley Fool perceptively comments  on the risks of buying seemingly cheap stocks of cash-burning companies, and INSW in particular. He argues that:

• Life insurance is badly suited to web-only sales, as "folks usually need a live person giving the persuasive push";
• INSW's term life insurance business is in strong decline;
• INSW has reacted by shifting to sales of auto insurance, which now account for 80% of sales;
• But that didn't stop Q4 revenue declining 8% year over year.

Most important, he says:

InsWeb has gone from spending $1.44 to land a new customer a year ago to $3.31 today. That would be fine if it could now milk that much more out of each generated lead, but that's not happening. The company's revenue per successful referral is just $5.22, only a $0.48 improvement from last year's showing.

He suggests that INSW has a fundamentally broken business model, which won't be saved by the AOL marketing deal.

Quick comments:

• Rick's article is admirably candid. Out of five stocks he selected for
  an article called "5 Dot-Com Bargains", he now admits only two "turned
  out to be real bargains". The five were: InsWeb (ticker: INSW),
  iVillage (ticker: IVIL), The Knot.com (ticker: KNOT), FindWhat (ticker:
  FWHT), and Mama.com (ticker: MAMA).
• INSW's marketing expense woes are typical of the industry-wide rise in advertising costs. INSW reported in its Q4 results that direct marketing costs rose 95% to $2.45 million from $1.26 a million year earlier. Direct marketing costs accounted for 63% of revenue in 4Q04, versus 30% a year earlier.
• Rick's full article about INSW is here.

INSW chart below.