With the IPO market cooling, United Online has pulled the IPO of its Classmates.com business. No surprise here. I thought the filing smelled funny from the get-go. Nobody else was buying Classmate’s story either. Let’s see, a high churn rate, an FTC investigation, and hints of self-dealing. No wonder investors passed. How is United Online going to get back that $50 million it “loaned” to its subsidiary now? → Read More

Everyone is trying to cash in on social networking these days. The latest attempt comes from Classmates Media, which just filed to go public at a valuation of $600 to $700 million. That is a smidgeon of Facebook’s still-private $15 billion valuation, but Classmates is no Facebook. Its site, Classmates.com, is more a competitor of Reunion.com (which raised $25 million last April). While Facebook’s U.S. visitors grew 129 percent in September to 31 million (according to comScore), Classmate.com’s shrank 12 percent to 13 million. (Even Reunion.com managed an 18 percent gain). Before buying this IPO, investors should look at who is selling. That would be United Online, which is spinning off 20 percent of its Classmates subsidiary and taking $50 million of the expected proceeds as payment for a loan (apparently, United Online didn’t want to simply invest in the business). United Online will keep the other 80 percent, and United Online CEO Mark Goldstone will also be the CEO of Classmates Media, and he is personally getting 2.8 million options at the IPO price. United Online’s current market cap is $1.2 billion. If it can price the IPO where it expects, at $10 to $12 a share, that would imply that half its value is attributable to Classmates. Here’s what we learn from a quick perusal of Classmates’ S1: —Revenues the first nine months of 2007 weer $140 million. (Full-year 2006 revenues weer $139 million; 2005 revenues were $85 million). —Net income the first nine months was $1.6 million. ($1.9 million loss in 2006; $8.2 million loss in 2005). —50 million registered users as of September, 2007. Only 12.8 million of which are active and 3 million of which pay on average $3.33 a month to email and connect with old friends directly. —Monthly churn of 4.6 percent Classmates makes money primarily from those people willing to pay a subscription. It also operates MyPoints, a loyalty awards marketing service, and owns a French social network, Trombi, and Sweden’s Stayfriends. Here was the doozy from the Risk Factors section: If our social networking members do not interact with our Web sites, our business and financial results will suffer. Our success is dependent upon our social networking members interacting with our Web sites. Currently, the network effect on our social networking Web sites is limited, and the vast majority of our member activity is within our high school communities. Our members → Read More