Classmates Media, which consists of rewards program MyPoints and social networking site Classmates.com, was supposed to release their stock IPO today, but they pulled out this morning. In this press release, United Online (MyPoints’ and Classmates’ current owner) said that going public today wouldn’t be in their stockholders’ best interests, due to “current market conditions.” The decision to withdraw the IPO is going to cost United Online around $5 million in transaction costs.
Why did they cancel the IPO? This article, from Silicon Alley Insider, gives some possible reasons for the decision: “Classmates (CLAS) IPO: The Real Reason It Failed.” In a nutshell, Classmates includes in its membership roles people who haven’t visited the site in years, they have less than half the unique monthly visitors that Facebook has, and they charge membership fees for features that are free elsewhere.
United’s stock started dropping around 12/10, when this article came out: “IPO Spotlight: Classmates Media.” It mentioned an FTC probe of Classmates’ automatic subscription renewal process, as well as a report that showed the average site visitor to Classmates.com only spent 8 minutes online, versus 193 minutes on MySpace and 196 minutes on Facebook.
Some stockholder message base chatter has suggested that the IPO would only be good for United, since they would be retaining the vast majority of voting rights. Also, in the past few days, United’s stock was battered as current stockholders cashed out in anticipation of buying in to Classmates Media. Several investors complained that United’s stock would be worthless once Classmates and MyPoints were gone, because that just left their dial-up internet business, and with everyone going broadband, Netzero and Juno don’t have much future.
It’s been rumored that a couple of key staff left the company in a big shake-up that preceded the decision to pull the IPO. More on that as it becomes available.
How will this affect MyPoints? Who knows. Lately it seems like owning MyPoints is the kiss of death. It could pull a repeat of what happened with the prior owner, United Airlines — sit idly in a state of disrepair while its owner scrambles to pull itself out of bankruptcy. Classmates’ business model could be changed drastically, as one investor suggested, to make all features free and to just monetize it using ad revenue, which would still enable Classmates and MyPoints to work together (as suggested in the Roadshow, incentivizing members with MyPoints for their activity on Classmates’ website, still innovative if it could be pulled off financially). Or MyPoints could be sold off independently, say, to Google. We can only wait and see.
I wish MyPoints would get stable ownership with sound finances and proactive management. It’s a shame to see the program slowly waste away.
