Content Matters

Open Table Should Buy Yelp

There was much celebration yesterday at Open Table's (NASD:OPEN) successful IPO. In this market, any IPO, especially a tech IPO is cause for celebration, and Open Table shares jumped 50% to more than $31 during its first day of trading after being priced above the initial $16-18 range.

 On its merits, Open Table is not that great a story right now. Restaurants are hurting in the current economy and the company lost $1M on revenues of $56 million in 2008, before things got really bad. More than half their revenue stream comes from the flat fees which they charge restaurants, so that should be somewhat predictable, but will certainly take a hit as restaurants shut their doors. The variable revenues, based on individual bookings will be at even greater risk until the market returns.

While Open Table has strong relationships with restaurants, what would make it a much more interesting company would be to reach out to the consumer side. An Open Table acquisition of Yelp would close the loop, allowing users to search reviews, then book their reservation on one system. It could also create new markets for Open Table. Yelp is well-positioned to become a dominant player in local advertising, and Open Table could potentially serve as the intermediary between buyers and sellers in those local markets. Adding user-generated content and social media to Open Table would position it for future growth as it would be embedded into the daily activities of its core audience. Open Table is a web 1.0 survivor; Yelp brings the newness of the web 2.0 environment and business approach and a nearly obsessive focus on the user.

Of course, Open Table and Yelp have been polar opposites when it comes to their corporate culture.

Open Table has served the restaurant and not focused its efforts on the consumer, while Yelp has shown a willingness to alienate restaurants in order to preserve its customer focus. Could that philosophical divide be bridged? It's worth exploring.

At an estimated valuation of $200 million, Yelp would be worth a third of Open Table, based on its current market cap. But together, the two would be well-positioned to become dominant players in local advertising across a multitude of consumer industries.

Classmates Yanks IPO

Via Doug McIntyre comes word that United Online Media (UNTD) is cancelling the planned IPO of its Classmates.com division due to market conditions.

The much-anticipated spin out and IPO was to raise $125 million.

As PaidContent points out, while there was enthusiasm for a pure-play social network, Classmates.com subscription model was not quite the same as a Facebook offering.  Rafat sources a recent Cowen & Company report that may have tempered investor enthusiasm:

“We expect the Classmates.com subscriber base to peak in the first half of 2008, followed by a steady decline to zero by 2012.”

Ouch.

Classmates.com Files for IPO

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. 

IPO for Classmates.com

Via PaidContent comes news that Classmates.com, an early player in the social networking space, plans a spinout from parent United Online Media and has filed for an IPO.

Classmates, described to me once as "proof that there are lots of married people who never got over their highschool sweetheart", had revenue of more than $139 million in 2006, though has yet to turn a profit.  The new company, Classmates Media, will consist of Classmates.com and the MyPoints.com loyalty marketing division, and will trade on NASDAQ under the ticker CLAS.  UNTD will retain a majority stake in the Company.  Meanwhile, Steven McArthur, formerly president of North American operations for Expedia, has been named President of Classmates.com.

Going forward, Classmates, which has 2.7 million paid subscribers, will have difficulty competing against the larger free social networking applications like Facebook and MySpace.  Then again, the market for tracking down your ex-girlfriend or boyfriend may be larger than I suspect.

CreditCards.com Files for IPO

Lead generation website CreditCards.com has filed to go public in an initial public offering to raise $115 million.

The CreditCards.com portal serves as a destination site for those seeking to compare credit cards offers.  The site generates revenues through acting as a lead generation service for issuers of credit cards and their marketing agents.  The Company generated revenues of more than $27m for the first half of 2007, up from $18.7 million for the same period a year earlier.

The Company was created last year by Elisabeth DeMarse with funding from Austin Ventures.  DeMarse, of course, previously led the growth of Bankrate.com from $15m to $36m in revenues and also served in leadership roles at Hoovers and Bloomberg, among others.

The Company indicates that it plans to use funds from the IPO to service debt, currently $154.8 million and for other expenses.

While the timing might seem unusual in light of the current credit squeeze, what the past has shown us is that, regardless of market or economic conditions, consumers are always looking at ways to manage their debt.  And with tighter markets, credit card issuers will be willing to pay a premium to generate more leads and fund growth.

Credit Suisse Securities will be the lead underwriter on the IPO, with participation by Citigroup and Thomas Weisel Partners.