Internet IPO: Classmates.com Competes With MySpace.com

Classmates Media (CLAS) is expected to issue a public offering of its stock this week. The company offers internet social networking and loyalty marketing services under the Classmates and My Points brands.

All quotations are from the company's most recent S-1 filing with links provided.

CLASSMATES MEDIA (CLAS)
Business Overview (from prospectus)

We operate leading online social networking and loyalty marketing services under our Classmates and MyPoints brands. Our leadership position is based on a number of factors, including the number of unique visitors to our Web sites, brand awareness and the number of registered members. Our success is driven by our expertise in growing and monetizing large online audiences in a cost-effective manner and enabling advertisers to reach relevant online consumers effectively. Revenues from our social networking services are derived from subscription and advertising fees, and revenues from our loyalty marketing services are derived from advertising fees

Offering: 12.0 million shares at $10.00 - $12.00 per share. Net proceeds of approximately $117.7 million will be used to repay debt, for working capital and for general corporate purposes.

Lead Underwriters: Goldman Sachs, J.P. Morgan

Financial Highlights:

Billable services revenues increased by $17.6 million, or 28%, to $81.1 million for the year ended December 31, 2006, compared to $63.6 million for the year ended December 31, 2005... Advertising revenues increased by $37.0 million, or 173%, to $58.3 million for the year ended December 31, 2006, compared to $21.3 million for the year ended December 31, 2005... Cost of revenues increased by $16.8 million, or 129%, to $29.9 million, or 21.4% of revenues, for the year ended December 31, 2006, compared to $13.0 million, or 15.4% of revenues, for the year ended December 31, 2005. Product development expenses increased by $5.0 million, or 72%, to $11.9 million, or 8.5% of revenues, for the year ended December 31, 2006, compared to $6.9 million, or 8.1% of revenues, for the year ended December 31, 2005...Product development expenses increased by $5.0 million, or 72%, to $11.9 million, or 8.5% of revenues, for the year ended December 31, 2006, compared to $6.9 million, or 8.1% of revenues, for the year ended December 31, 2005.

Competition:

Our social networking services compete with a wide variety of social networking Web sites, including broad social networking Web sites such as MySpace (NWS) and Facebook; a number of specialty Web sites, including LinkedIn, Reunion.com and Monster.com's (MNST) Military.com service, that offer similar online social networking services based on school, work or military communities; and an increasing number of schools, employers and associations that maintain their own Internet-based alumni information services. We also compete with a wide variety of Web sites that provide users with alternative networks and ways of locating and interacting with acquaintances from various affiliations, including Web portals such as Yahoo! (YHOO), MSN (MSFT) and AOL (TWX), and online services designed to locate individuals such as White Pages and US Search...

The market for our loyalty marketing services is competitive, and we expect competition to significantly increase in the future as loyalty programs grow in popularity. Our MyPoints loyalty marketing business faces competition for members from several other loyalty programs, including Ebates, Upromise and FatWallet. We also face competition from offline loyalty rewards programs that have a significant online presence, such as those operated by credit card, airline and hotel companies.

Additional Resources:

• Company website
• Online road show
• Seeking Alpha: 'Looking To Invest In Social Media? Check Out Classmates Media's IPO'; 'Cashing In On Social Networking: United Online Files IPO For Classmates Media Unit'
• Wired.com: 'Classmates.com IPO: What Are These People Thinking?'
• TechCrunch.com: 'Classmates IPO Tries to Cash In On Social Networking Craze'
• BloggingStocks: 'Seeing through the Classmates.com IPO'

Comments

[User 128524]

Comparing Classmates to MySpace is absurd. Classmates has been around spamming people, and trying to force a mediocre subscription-based service for years. In a nutshell, Classmates is for older folks who are intentionally trying to reconnect with their high-school buddies in a fleeting way. MySpace is a hot social site for a younger, far more dedicated audience.