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 do not visit our Web sites frequently and spend a limited amount of time on our Web sites when they visit. In addition, only a limited number of our social networking members post photographs and information about themselves, engage in message board discussions, view other members’ profiles or participate in the other features on our Web sites. If we are unable to encourage our members to interact more frequently with our social networking Web sites and to increase the amount of user generated content they provide, our ability to attract new users to our Web sites, convert free members to paying subscribers and attract advertisers to our Web sites will be adversely affected. As a result, our business and financial results will suffer, and we will not be able to grow our business as planned.
Oh, and the FTC is investigating its membership subscription auto-renewal policy, where it just keeps charging your credit card until you tell it to stop. (Imagine what its churn rate would be if it didn’t resort to that sleazy tactic?). Maybe the FTC should try to find out why anyone would pay to be part of a social network when there are so many others out there that let you keep up with your high school or college friends for free.
Update: Just got October 2007 social networking numbers from comScore. Classmates did a little better with 14.4 million U.S. visitors, which was still a one percent year-over-year decline. (Facebook’s U.S. traffic rose 118 percent to 32.9 million during the same period).
When is Techcrunch going public?
Then everyone would know there bubble is near :).
Facebook should go public in another year, after there great labor expansion.
Classmates.com is to social networking as Real Networks is to media players
“Oh, and the FTC is investigating its membership subscription auto-renewal policy……….”
Thank goodness. I was a victim of this crap and they sucked an extra year membership out of me. Then they had the gull to contact me several times and offer me a discounted rate to stay on. What a joke! This model is only good when their is a class reunion coming up.
Churn of 4.6% = 55% of your customer base per year. Makes Vonage look like they don’t have any churn issues.
I think the bubble is near regardless of how you slice it!
That valuation does seem rich for Classmates. But the auto-billing thing doesn’t seem like a huge deal, lots of services do that - World of Warcraft and Linkedin are two.
Side note: Facebook’s valuation really shouldn’t be quoted as $15 billion. Microsoft paid $240 million for two things:
#1 - An exclusive ad deal with Facebook
#2 - A tiny % of the company
There’s no way they would have paid that much for just the equity stake. And Facebook can only do that deal once. I highly doubt subsequent investors would be willing to buy in at the same valuation.
Classmates is a pretty bad site all in all — none of the “reunion” type sites got it right, even though they were early movers. Of course, MySpace was started by a notorious bunch of spammers, and Facebook creeps into people’s private data — so all around the “Social Networking” sites are full of some of the biggest scumbags on the web.
Compete has Classmates at 13,977,209 (up 7% y-y) and MyPoints.com at 3,878,799 (up 60% y-y)
http://siteanalytics.compete.c.....oints.com/
United Online bought MyPoints for ~$56M early 2006.
I don’t know why they are still in business with myspace and facebook. Who uses classmates anymore. He wants to pay to find friends.
Does anybody actually use Classmates? They’re about as social a network as the All Music Guide. They must be trying to exit and get a piece of that SN pie. $700mil just seems too low for them.
Yum, let’s hope they find enough idiots to believe their USER STORIEZ.
Classmates violates fourth Amendment. It’s unconstitutional to seize school records and file IPO to get themselves rich.
I felt like I want to sue Classmates for million dollar while I’m U.S citizen register. I have right to ease my identity. I do not give them permission to have my name on the list. I do not allow them to use Sponsors under my name.
I’m really piss off at Classmate.com
CLASSMATE. GET FUCK OFF MY NAME IDENTITY. Techcrunch, how do I ease Classmate name?
I hate adult school bullies, telemarketing, violation of privacy, etc… I need quiet privacy. How do I ease the my name?
I’m constantly amazed at the valuations of these companies.
Usually when you value a company, you discount expected future cash flows with a discount percentage that reflects the inherent risk.
The more uncertainty, the bigger the discount percentage.
But it seems these companies’ expected cashflows are discounted at the risk free rate.
Which reminds me of the old saying to the effect of “the one who asks is not the fool, it is the one who pays what is asked”.
Why I need to ease my account?
My dad said a lot of senior got identity stolen and use expensive medical care system. I like to ask Classmate.com and CEO. I want them to take off my name.
I have right to enjoy my private life. I have right to live wealthy life.
@11 & 13:
Succinct, yet powerful. I salute you, sir (or madame).
We all have right to live wealthy life. Wealthy, wealthy, wealthy life.
Techcrunch, how do I ease my not so wealthy life?
This will make Enterpenurers here angry.
Every entrepreneurs and founders need private life. It is our duty keep stalkers away. Remember chairman bill gates got cream pie in face.
Need to ease name…
Comment 11 just made my day
@16 …same here
You see people flee from United States of America. They fear identity stolen.
This is why you have number empty homes.
Many of us dream of leave this country. Of course, we do…
is this comment thread just one long group non-sequitur joke?
if it is, i like it - or is it just all esl around here today?
sadly for me I found more obscure people through lists (classmates, my university alumni group) of fomer classmates [who are now in their mid to late 30's] than I do on FaceBook/LinkedIn. LI works on the assumption that users come to them, whereas Classmates did the opposite - they posted the consolidated data (lists of school attendees) then let people add to it and connect. It’s not the world’s worst business model although it’s probably becoming less relevant w/ the proliferation of MySpace, LI, FB etc. that are all free and as more people join.
I was speed reading this, cuz, eh…what IPO isn’t frought with issues?
I read this, however: “Oh, and the FTC is investigating its membership subscription auto-renewal policy, where it just keeps charging your credit card until you tell it to stop. (Imagine what its churn rate would be if it didn’t resort to that sleazy tactic?).”
Um. Ok. Have you ever had a gym membership? It’s actually a courtesy. Imagine them calling you every month asking for money. You’d cancel.
I dare say this is how it is with pretty much every recurring membership in the world…odd that Classmates is singled out as using “sleazy tactics”.
If you can’t remember, or do not read your monthly CC statement, it’s your fault. You cannot manage your money.
True story.
Now, if there is actually something underhanded going on — that’s another story. And you aught to include that important piece of info. I’m sure many people would like to know why the FTC is investigating them (surely not because of a normal subscription renewal process).
@11 Forget the anger and go into comedy…for real!
Anyways…the IPO seems a bold move since it’s very a apparent that this company is just turning the corner.
I love the domain name though…they may very well be getting quite a bit of natural traffic…
“Oh, and the FTC is investigating its membership subscription auto-renewal policy……….”
You actually signed up to pay classmates using this “tactic” and you blame Classmates? The world is full of so many VICTIMS. Anyone belong to 24 Fitness? Wasn’t there a “Friends” episode just about quitting the gym?
Adam #4 - be a big boy and visit the site to cancel your subscription. don’t rip them for getting you to sign up in the first place, when you are just too uber busy to go cancel it yourself.
Okay, I admit, I am ignorant. What does it mean to ‘ease my identity,’ and for that matter to ‘ease my wealth’? Wouldn’t it be to tighten your wealth, as in, to have your wealth buttoned up and secure? If it’s just a typo, I understand, my foreign language skills are pathetic by comparison. If not, enlighten me.
Tut, my gym memberships and my online subscriptions have always required an annual re-subscription of some kind. I thought it was just a chance to increase my subscription rates, but maybe it was a better-business policy.
clearly king tut and i are the only true capitalists on this forum.
If your mother is name valerie plame who works at CIA. What would you do if someone spotted mom’s name on classmate.com?
Mmm…Classmates has been around for absolutely forever. I think they’ve missed their chance. Unless perhaps they can offer significantly more rewards for MyPoints and integrate it into their other offerings.
Anywho, I just spent extensive time on mypoints figuring out their value proposition, and man, it is slim. I read their privacy policy, TOC, SEC (via United online), and I thought it was 1999. These folks need a wake up call. Dave, what’s your take, you seem to believe in that ‘gimmick of a website’?
Hi,
In the UK and Australia, there’s a counterpart to reunion/classmates.com called Friends-Reunited.
It’s owned by the countries largest commercial broadcaster, ITV (which might have limited its agressivness), and while it might not be the hip in-thing, it continues to generate an approx. of $100million in profit.
Not bad, compared to… how much profit does FaceBook make with it’s 10’s of millions of users and ignorant media-hype?
If anything, because of the badly-run/un-developed nature of Classmates.com, possibly after a dot.bomb 2.0, there’s potential for additional revenue-generation………….(id & aggregate)…………
Yours kindly,
Shakir Razak
Looks like United Online’s strategy of branching into free Web content and hosting services has largely failed. They’re spinning off 20% of Classmates Media, which includes MyPoints.com and Classmates.com that acquired only two years ago, and prior to that they shut down PhotoSite.com which they had acquired from Homestead Technologies. Interestingly, Homestead was just acquired by Intuit today for a lofty $170 million. They managed to make some money off PhotoSite by selling it before it was shut down now they’re selling the whole company. Nice!
With the market correction we’re experiencing and the start of a bear market, coupled with a likely recession, I expect a lot more exit strategies at slightly reduced (though still high) valuations to large media conglomerates before the market runs completely dry and we head into a full-on recession.
It should make for some nice buying opportunities for those of us that “missed the boat” on this bubble!
Cheers,
Doug
@24 “ease” means “erase”. Just say “ease” for short. All the 1337 peeps are doing it.
King Tut and Arju are spot on. ‘Sleazy Tactics’? Netflix does the same thing. You sign up, they bill you till you tell them to stop. That’s why it’s called ‘recurring revenue’. It’s what nearly all subscription services do. My cellphone company charges me every month without telling me until they bill it. Yes, sometimes there are terms involved (like cell phones and gym memberships) that specify the total billing time and cancellation fees, etc. But that comment makes Erick at Techcrunch appear as if he doesn’t understand really anything about how the world of subscriptions works, and makes Techcrunch look extremely judgmental and inexperienced because those ’sleazy tactics’ are used by 100’s of companies in nearly every industry out there.
“Maybe the FTC should try to find out why anyone would pay to be part of a social network when there are so many others out there that let you keep up with your high school or college friends for free.”
Maybe the writer should try to figure out why sites are available for free when people are clearly willing to pay for it.
is good.
Classmates is only a wannabe MSGradClassOnline!
http://fakesteveballmer.blogspot.com