It's safe to stop calling United Online (Nasdaq: UNTD ) an Internet access company. Last night's quarterly report shows how far the company has come in diversifying beyond its fading Juno and NetZero dial-up operations.
Sure, revenue fell by 5% to $120.9 million, if you back out the recent acquisition of florist lead-generator FTD. But that result's really the combination of a 19% dive in its access services, partly offset by an 18% gain at its Classmates Media arm (which includes alum hub Classmates.com and loyalty shopping site MyPoints.com).
Even without FTD, operating income, earnings, adjusted profits, and free cash flow all grew during the period. United Online posted a profit of $0.21 a share, or $0.34 a share on an adjusted basis. On that adjusted basis, analysts were looking for a profit of $0.29 a share on $119 million in revenue.
Bring in the high-margin revenue of FTD's namesake business, along with Interflora, and the company's dial-up ways all but disappear. If FTD had been part of the company from the beginning (as opposed to the late August completion of its acquisition), it would have accounted for half of the quarter's revenue. Juno and NetZero would have cut a tiny 26% slice of the revenue mix pie.
Is it in United Online's best interest to unload its dial-up dinosaurs? Not necessarily. For starters, it's a bad time to be a seller. EarthLink (Nasdaq: ELNK ) is the only logical buyer, outside of bottom-feeding private equity firms. Time Warner (NYSE: TWX ) is more likely to unload AOL's dial-up business than it is to acquire rivals.
In the meantime, United Online can use its captive audience of dial-up users to promote floral deliveries, rewards-based shopping, and rekindling relationships with former school chums.
It can also go on the prowl for even more purchases. The company slashed its dividend in half, but it's still yielding a respectable 5.3%. With a collection of Web properties that double as money trees, the company can use the extra money to shore up its balance sheet, buy back stock, or go hunting for value in a distressed sector.
The last approach is probably the best, given the great bear market deals to be had. It can acquire companies like auto showroom lead generator Autobytel (Nasdaq: ABTL ) or insurance lead peddler InsWeb (Nasdaq: INSW ) for less than a quarter of their 52-week highs.
Either way, now that FTD is officially part of the United Online family, the next few quarters should work wonders for the company in making investors look beyond the gradual erosion in the dial-up industry.
Internet service provider? United Online? That is so 2007.
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