Classmates

Hoping for a big score - Classmates.com IPO

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You may have heard Classmates.com, the website which is in direct competition with reunion.com is going public. Classmates is actually owned by United Online, which owns other businesses such as a French social networking website and loyalty rewards program.

Why you shouldn’t jump at this IPO

First, take a look at their SEC filing. If you are so inclined, find risk factors on page 11. Here are parts of what it says:

Failure to increase or maintain the number of paying subscribers for our social networking services would cause our business and financial results to suffer.

We may not be successful in increasing or maintaining the number of paying subscribers for our social networking services. Only a small percentage of members initially registering for our social networking services sign up for a paid subscription at the time of registration. As a result, our ability to generate subscription revenue is highly dependent on our ability to convince free members to return to our Web sites and become paying subscribers. The number of free members returning to our Web sites has decreased from time to time, and if we were to continue to experience such decreases, it would likely adversely impact our number of paying subscribers.

Even better, it continues:

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