ClassMates Media, a wholly-owned subsidiary of United Online, has filed an S-1:
sec.gov
Red Herring is not impressed:
Will Classmates Flunk IPO?
on 14 August 2007, 19:15
by Scott Martin
High school reunions are ugly reminders of just how old and flabby people can get. Classmates.com, which on Monday filed for an IPO, is like encountering the former schoolmate who’s spent 10 years studying the inside of a Doritos bag.
Classmates.com might keep track of high school cheerleaders, but it probably won’t find many on Wall Street. That’s because its Ice Age online business model relies on costly advertising and spamlike e-mail marketing campaigns to drive its subscription-based service. And its profitability prospects are grim.
“We have a history of losses and we may not achieve profitability in the future,” Classmates said in its U.S. Securities and Exchange Commission filing.
Classmates reported a loss of $250,000 for the three-month period ended March 31, 2007. Worse, it reported a loss of $1.9 million and $8.2 million for the full years ended Dec. 31, 2006 and 2005, respectively. All told, the profitless company said it has an “accumulated deficit” of $12.1 million.
Founded in 1995, the aging Classmates hopes to raise as much as $125 million in its initial public offering, according to the documents. Among the various hazards cited by Classmates in the preliminary prospectus are risks posed by its budget for advertising and its reliance on email campaigns to drive new subscribers. Classmates said it has to pay a fee for each lead generated from ads and said such Internet advertising tariffs are on the rise.
Further, Classmates said it’s vulnerable to those who opt out of commercial emails under the provisions of the 2003 CAN-SPAM Act.
“In compliance with the CAN-SPAM Act, we do not send commercial emails to our members if they elect to opt-out of receiving these emails,” Classmates said in the filing. “As a result, an increase in the number of members who opt-out of receiving commercial emails from us could adversely affect our business.”
Classmates has other woes. The company cited stiff rivalry from the likes of MySpace, Facebook, LinkedIn, and Reunion.com as risks to its business. Classmates said in the filing that increasing competition in the future could result “in a loss of users and reduced revenues or decreased profits.”
Classmates representative John Uppendahl declined to comment on the company’s proposed IPO, citing a quiet period.
Classmates.com was acquired by United Online in November 2004. The company filed to trade on the Nasdaq under the ticker symbol “CLAS.”
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