Category Archives: Deutsche Bank Securities

No IPO for Classmates.com

On November 27, 2007 we have reported that Classmates Media has just filed to go public at a valuation of $600 to $700 million. It then appeared that Classmates is trying to cash in on the social networking market craze.

Classmates Media Corp., which operates the online social networking site Classmates.com, (when the company started they did not call themselves social networking site) expects its planned initial public offering to total 12 million Class A shares and price between $10 and $12 each.

Today we learned they have canceled their IPO in US. If it did go through it could have been the first pureplay social networking IPO in the country. And probably Facebook could have gathered some vital market information on how far they could eventually go to with their planned IPO in 2008 or 2009. But as it seems things did not work out.

United Online (NSDQ: UNTD) has canceled the proposed IPO of its Classmates.com social networking unit. By citing the standard “market conditions,” the company now says that such a move wouldn’t be in the interest of stockholders. In other words, the interest wasn’t there. While there had been some excitement over a social networking pure-play IPO, Classmates.com, with its subscription-driven business model and earth-bound growth rates, couldn’t fully capture the buzz. United Online said it will take a $4.5-$5.5 million charge in Q4 associated with the aborted process.

There could potentially be countless reasons for that decision but certainly several of them are standing out:

  • IPO market is sort of cooling.
  • The filing anyway did not appear any serious from the get-go.
  • Classmates is far beyond the buzz level some other social networking sites are enjoying today.
  • They have tried but it seems nobody else was buying Classmate’s story.
  • The FTC investigation (The company’s auto-renewal system has come under investigation at the FTC, potentially causing churn to spike).
  • Hints of self-dealing.
  • User engagement is 95 percent lower than say on Facebook, suggesting that users see little value in the service they’re paying for. Classmates has little value for young users, since there’s no need for them to re-connect; they’re already connected through other sites.
  • Facebook is making major inroads into Classmates’ adult demographic.
  • Classmates is sort of Web 1.0 company.

Taking into consideration some of the above points it is no wonder the investors passed.

An interesting question was asked by Techcrunchers: How is United Online going to get back that $50 million it “loaned” to its subsidiary now?

A recent report from Cowen & Co. analyst Jim Friedland spells out exactly why United Online couldn’t cash in with Classmates. One line sums up his thesis: “We expect the Classmates.com subscriber base to peak in the first half of 2008, followed by a steady decline to zero by 2012.” Much of the report hones in on the fact that Classmates is no Facebook. The biggest difference is that Facebook is free and offers far more robust features.

While we do not take the Facebook reason for a valid point, since Facebook itself is most likely going to become paid in some parts at some point in the future, we think the problem with Classmates is more on the aspect of the fact it is generally declining business rather than rapidly growing with viable future as for example some of the newer social networking players, including but not limited to, MySapce, Facebook, Bebo and a countless number of market-niche specific social networking sites and community sites of new type and breed.

While we are not sure how profitable Classmates is the revenues for the full year of 2006 were $139 million and 2005 revenues were $85 million. 2007 is expected to bring in more than $140M.

Via

[ http://web2innovations.com/money/2007/11/27/classmates-prepares-for-an-ipo/ ]
[ http://www.techcrunch.com/2007/12/12/update-classmates-ipo-is-pulled/ ]
[ http://www.nytimes.com/paidcontent/PCORG_317818.html ]
[ http://www.techcrunch.com/2007/11/26/classmates-ipo-tries-to-cash-in-on-social-networking-craze/ ]
[ http://biz.yahoo.com/ap/071126/classmates_media_ipo.html ]
[ http://www.sec.gov/Archives/edgar/data/1409112/000104746907009507/a2179839zs-1a.htm ]

Classmates prepares for an IPO

Classmates Media has just filed to go public at a valuation of $600 to $700 million. Compared to Facebook’s $15 Billion valuation, which the company took as a private entity, it ranks the company more in the bottom level of the Internet sector rather than within the top 100. It appears that Classmates is trying to cash in on the social netwrking market craze.

Classmates Media Corp., which operates the online social networking site Classmates.com, (when the company started they did not call themselves social networking site) expects its planned initial public offering to total 12 million Class A shares and price between $10 and $12 each.

Based on the anticipated price range, Classmates would have a market capitalization of $600 million to $720 million. Assuming an offering price of $11 per share, the company expects to raise net proceeds of about $117.7 million after fees and expenses from the IPO. Mark Goldstone will be the CEO of Classmates Media, and he is personally getting 2.8 million options at the IPO price.

Here are some facts at a glance as taken from the Security Exchange Commission:

—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 subscriptions. It also relies on MyPoints, which is a loyalty program. The company also owns a French based social network, Trombi, and Sweden’s Stayfriends.

Goldman Sachs and JP Morgan Sercurities are serving as joint book-running managers for the IPO. Deutsche Bank Securities is also underwriting the offering. The underwriters have an option to buy up to 1.8 million shares from the company to cover any overallotments.

The company plans to list its shares on the Nasdaq Global Market under the symbol “CLAS”.

In an another story the FTC is investigating Classmates membership subscription auto-renewal policy, where it just keeps charging your credit card until you tell it to stop, reports Techcrunch’s Erick Schonfeld.

comScore’s October 2007 social networking numbers reveal Classmates had 14.4 million U.S. visitors, which represents a one percent year-over-year decline.

The company’s overview:

We operate leading online social networking and loyalty marketing services under our Classmates and MyPoints brands. Our leadership position is based on a number of factors, including the number of unique visitors to our Web sites, brand awareness and the number of registered members. Our success is driven by our expertise in growing and monetizing large online audiences in a cost-effective manner and enabling advertisers to reach relevant online consumers effectively. Revenues from our social networking services are derived from subscription and advertising fees, and revenues from our loyalty marketing services are derived from advertising fees.

On our social networking sites, we enable users to locate and interact with acquaintances from school, work and the military. Led by our flagship Classmates Web site, our social networking properties are comprised of a large and diverse group of users, with over 50 million registered accounts as of September 30, 2007. Social networking pay accounts at December 31, 2005 and 2006, and at September 30, 2007, were approximately 1.8 million, 2.2 million and 3.0 million, respectively. Using our interactive tools and features, our members have contributed to our social networking Web sites a substantial number of distinct, relevant pieces of content, such as names, school affiliations, profiles, biographies, interests and photos.

MyPoints, our online loyalty marketing service, provides advertisers with an effective means to reach a large online audience with targeted marketing campaigns, while also enabling consumers to earn points-based rewards by responding to email offers, completing online surveys, shopping online and engaging in other online activities. During the last year, we marketed the products and services of over 400 advertisers to our MyPoints members, including NetQuote, Inc., Office Depot, Inc., VistaPrint Limited and Waterfront Media, Inc. As of September 30, 2007, over 8.8 million members were registered with MyPoints, over 6.0 million of whom were registered to receive email marketing messages from us.

From all this it becomes clear for us that calling yourself a social networking site might be profitable these days.

[ via Techcrunch ]

[via Yahoo Biz ]

[ via SEC ]