FriendFinder Networks Files IPO in Desperation

Within the carnage of the 2008 IPO market, we have an announcement of a new IPO filing here at the end of the year that will surely generate some interest (maybe curiosity is a better word) as we head into 2009. FriendFinder Networks, formerly Penthouse Media Group (before Penthouse bought the FriendFinder sites from Various for $500 million and changed its name) have filed a registration statement with the SEC for a $460 million IPO which will be offered by Renaissance Securities.

FriendFinder Networks is the company behind Penthouse & AdultFriendFinder.com, an adult social networking/dating site generating over 20 million unique visitors a month. It's by far the most popular internet property of the company that also runs Cams.com (4 million visitors), FriendFinder.com (500K visitors), SeniorFriendFinder.com (325K visitors), Amigos.com (200K visitors), AsiaFriendFinder.com (100K visitors), and BigChurch.com (75K visitors). That puts FriendFinder Networks' total traffic per month at about half of what MySpace and Facebook are getting, BUT FriendFinder Networks monetizes with monthly membership fees in addition to a bit of advertising, so in terms of monetization alone, I'd argue the properties together may be more valuable.

I suppose Facebook could begin charging a small monthly or yearly fee (50 million users charged just $2/month is a billion dollar per year business) and they would probably retain a majority of their users, but that's probably a year or two away and only happens if their advertising initiatives fail (or they offer the option in exchange for no advertising and more features... for Facebook Power Users!)

FFN has been profitable for the nine months ending Sept 30, 2008 with revenues of $262.4 million and operating income of $36 million, but the purchase of Various has created a big debt problem. The IPO is looking like a desperate measure to pay it off quickly before foreclosure proceedings. As TMT Analyst, Kenn Registe reports, FFN appears to be in default on its debt due to its failure to maintain covenants. From the S-1:

We have breached certain non-monetary covenants contained in agreements governing our 2005 Notes and 2006 Notes and our subsidiary, INI, has breached certain non-monetary covenants contained in its agreements governing the First Lien Senior Secured Notes, Second Lien Subordinated Secured Notes and Subordinated Convertible Notes. We cannot assure you that we will be able to cure such defaults or events of default, obtain waivers and consents, amend the covenants, and/or remain in compliance with these covenants in the future.

This IPO looks like a last ditch effort to avoid having to sell off assets for peanuts. That isn't the only issue. FFN offers large pay outs to affiliates which it derives nearly half of its revenues from. Many of these affiliates that promote the adultfriendfinder.com site will stop at nothing to get their ads in front of you, even if it means through viruses. I know I've seen these ads on sites where they shouldn't be and they are obnoxious. In fact, on Dec 6, 2007, they settled with the FTC and agreed to discontinue displaying sexually explicit ads to consumers who are not seeking sexually explicit content.

To top it off, Valleywag reported a few months ago that working at FriendFinder may not exactly be Happyville and the COO apparently threatened to fire everyone. Not exactly what I'd call a high quality IPO, but it will be interesting to watch how this plays out.

Comments

[paintismotion:]

Bah! This is old news and not even accurate. The whole management thing at FFN was cleaned up last October. A lot of deadwood was cleared out of there and a lot of new blood about a decade younger per person, much smarter and less expensive fixed the problems caused by people who felt entitled to be working in an environment where they were not forced to work but rather introspectively belly gaze on problems of their own making. Some people just can't recognize that they themselves turn toxic for their employer over time and need to be "recycled". Tony Previte has totally changed this company from a bumbler to a tiger. Good show Tony! This will be one IPO i can get behind in 2009 and I will. The upside is tremendous when you know what components there really are in the IPO.

2008 Dec 25 12:29 PM

[Moon Kil Woong:]

"Our ability to continue as a going concern is dependent on our ability to raise additional capital, including from this offering. As of September 30, 2008, our balance sheet had approximately $43.3 million in cash and restricted cash and $420.1 million in short-term debt, net of unamortized discount, $411.0 million of which had been reclassified from long-term debt, due to our failure to comply with certain covenants and restrictions in the agreements governing our 2005 Notes and 2006 Notes and our subsidiary's First Lien Senior Secured Notes, Second Lien Subordinated Secured Notes and Subordinated Convertible Notes and for which waivers had not been obtained...If we are unable to cure such defaults and/or obtain waivers, we could trigger the acceleration of payment provisions in such agreements which would require us to immediately repay up to approximately $466.0 million to our noteholders. We do not currently have sufficient cash to repay this indebtedness if our debt is accelerated and if the noteholders instituted foreclosure proceedings against our assets, the proceeds of the assets could be insufficient to repay such indebtedness in full. Under these circumstances, we may be unable to continue operating as a going concern."

This is according to it's IPO filing. This IPO is a very funny joke. If it actualy flies it will be a testament to how gullible investors really are and how your mutual fund money can be spent by bad fund managers on stocks you would never dream of holding yourself.

2008 Dec 26 03:36 AM