Classmates.com, one of the early entrants in the social networking space, has updated its S-1 filing for an IPO to raise approximately $117 million. Classmates is currently wholly owned by United Online Media, which will continue to own 80% of the company after the offering.
Classmates.com has been one of the few paid content success stories in the consumer space and the only consumer entertainment play I can think of that has reached such strong subscription levels. Other consumer-focused subscription products tend to be reference materials such as Consumer Reports or business focused products like the Wall Street Journal, Barron's or the Street (many of which are actually expensed to businesses). But Classmates is far from a "need to know" type of business. As one former colleague said, describing the company, "who knew that many people wanted to cheat on their spouse with an old flame?".
The Company, which initially announced its intention to go public this summer, has reached profitability in 2007, with 9-month revenues of $140 million and net income of about $1.65 million. As of September, the site has 50 million registered (free) subscribers and 3 million paid subscribers (up from 2.7 million in June).
The updated terms have the company offering 12 million shares at a target price of $10-12; the underwriters on the deal are Deutsche Bank, Goldman Sachs and JP Morgan. Reading the filing, Classmates is clearly trying to take advantage of the social networking hype stirred by Facebook,
MySpace and others. While Classmates user base of 50 million registered users sounds impressive, users are not engaged at the levels they are with other social networks such as Facebook or MySpace. Instead, Classmates is more like LinkedIn - a user may visit once a month or once a quarter, but probably not on a daily basis.
What Classmates has done very well is its marketing. Anyone who has registered for the limited free service has received teaser emails saying things like "six people signed your guest book this month, click here to find out whom", with the link requiring you to upgrade to the paid service.
Meanwhile, in other social networking news, rumors abound that News Corp plans to acquire LinkedIn this January. The story was originally broken by TechCrunch UK on Thanksgiving day. The deal would make sense on a few levels. Obviously, it would balance the demographics of MySpace, but I also could see them leveraging the classified and display ad sales capabilities of the Wall Street Journal to sell advertising on LinkedIn. There would also be the opportunity to cross-sell Dow Jones content via the LinkedIn platform. Could be an interesting fit.
