Thursday, January 16, 2014

United Online Content & Media Segments Provide Little Growth Prospects


Content/Media Member counts as of Q3 2012
Classmates: 57 million
StayFriends: 29 million
MyPoints: 9 million

Classmates/Memory Lane

After a failed attempt to become the webs leader in 'nostalgic content' Classmates is to social media as BlackBerry is to smart phones. That actually might be a compliment. The premise of the website is essentially what helped launch Facebook (FB) to stardom.

First called 'classmates' then re-branded to 'memory lane' ... now appears to be back to classmates. If you think MySpace is a ghost town, you know classmates is too. Searching the web for information about the website and you're likely to stumble upon many of the customer complaints about subscription charges billed to their credit cards. The company made a push into scanning old high school yearbooks into a database, and that might be the one unique selling point the website has. It also appears that's where a decent percentage of the organic search traffic comes from.

The site makes money from ads and by charging for certain access rights & content - most on a recurring basis; which is where many of the customer complaints stem from.

The bright spot is that 2013 Q3 churn went from 30,000 net decline, down from 66,000 the prior quarter. (Transcript)

MyPoints

This site is a way for consumers to earn points which are converted to cash or other items like gift cards or airline miles. A customer earns points by filling out surveys, searching the web, playing games and buying things through affiliated merchants. This space is less trendy than social media, but somewhat of a 'spammy' business since customers are bombarded with e-mails from partners & affiliates of MyPoints.

Baring that UNTD is capable of acquiring even low quality traffic, it should be able to monetize MyPoints while maintaining low customer service standards & not re-investing in the business much. It appears that MyPoints can maintain registration levels partly due to affiliates, who are converting leads for the company at a decent rate. Each of these signups cost the company $1.00 + network fees - scrub rate. The company wrote down the value massively during the 2013 year, and they haven't provided much color on how (or if) they will be able to grow this business.


StayFriends

On the StayFriends.com website, which I had to translate into English, they boast 29 million users, 100 employees and they were hiring at 4 different positions in January 2014. In August 2013 the company boasted 14 million members in Germany. The company will use some of the technology and marketing techniques they've developed for Classmates on this membership base. With the growth of Facebook, Twitter and localized social media in these countries - it's hard to imagine these numbers are nothing more than mostly inactive accounts in a few years.

MySite

When I was following the companies conference calls, they don't even really talk about this website much, so I can imagine the income is negligible. If you think that they might have a hidden gem here, I'd doubt it. Wix.com Ltd (WIX) went public in November 2013 and the financials show they don't make a profit. Form my experience Wix's offerings were pretty weak & clunky so I'm not surprised they don't make money, but that's beside the point, web hosting is a highly competitive business with much larger players including Amazon and RackSpace.

There are some self-employed affiliate marketers with a better portfolio of websites than United Online has. They do benefit from a massive user base (they have paid marketing fees for) ... and e-mails to millions of people at a time is going to lead to sales - even if at an increasingly lower conversion rate.

Most investors are going to flock into United Online for the dividend, and in the short term, the company should be able to bleed these properties of revenue each quarter. They've resulted to spammy techniques that have left high quality customers canceling accounts. Your growth largely depends on people using these sites more - and given all the competition in these spaces, that is unlikely. The other option is that they acquire new websites - but based on this track record of purchases, that may not be the best use of cash.



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