Get In on an Adults-Only IPO

Leave it to a steamy company to try to heat up an ice-cold IPO market. FriendFinder Networks is filing to go public this week, looking to raise as much as $460 million by proving that sex sells, even in recessionary times.

FriendFinder runs several innocuous dating sites, such as Senior FriendFinder for seasoned daters and BigChuch.com for single people with devout religious beliefs, but let's not kid ourselves. FriendFinder is all about AdultFriendFinder.com, which bills itself as "the world's largest adult social network & sex personals."

With more than 25 million members, the "real people, real sex" IPO will answer life's most pressing question: Can booty calls kick butt in your portfolio?

There are already plenty of publicly traded companies with online-dating ties, including Yahoo! (Nasdaq: YHOO  ) Personals, The Knot's (Nasdaq: KNOT  ) GreatBoyfriends.com, and IAC (Nasdaq: IACI  ) with Match.com and Chemistry.com. I guess you can call FriendFinder an adult mating site.

Is it taboo? Well, there are plenty of publicly traded adult-entertainment companies out there already. Everyone knows softcore giant Playboy (NYSE: PLA  ) , but there's also strip-club operator Rick's Cabaret (Nasdaq: RICK  ) and adult-video maker New Frontier Media (Nasdaq: NOOF  ) . Folks trade in these companies all of the time, and the share certificates aren't delivered in brown paper bags.

For many investors, the real question will be whether this is a business worth investing in. FriendFinder derives revenue in different ways, but the biggest driver is subscription revenue. Nearly a million members pay an average of $19.06 a month for access to premium content and site features. Monthly churn is a ridiculously high 18%, but you probably expected as much. Subscriptions account for the majority of the $243.9 million FriendFinder made in the first nine months of the year. A good chunk of what's left comes from usage fees, as the company collects nearly $3 per minute for access to premium webcam content.

Does this add up to a good business? It's debatable. The company has posted operating losses and net losses in each of the past three years. It is showing an operating profit through the first three quarters of 2008, so perhaps the income statement is starting to get lucky.

The company is sporting more than $400 million in debt, and its independent accounting firm is tagging most of that burden as current, as the result of "events of default." Ouch. This would explain the rush to take the company public and the amount of money being raised in the offering.     

The warning flags are certainly there, yet it is also a climate that is likely to deliver an attractive price to the IPO for investors.

Sex does sell. Now we just need to know who's buying.

Some interesting ways to profit from the IPO void:

The Knot is a Motley Fool Rule Breakers pick. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz is a fan of new stocks and has even recommended several fresh IPOs to newsletter readers in the past. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 24, 2008, at 2:29 PM, motleyjerm wrote:

    Friend Finder has been very very profitable for years. The prior year losses are from the Penthouse side of the business and were pre-acquisition of FF. If you are going to cover the adult business, get serious and do your homework!

  • Report this Comment On January 22, 2010, at 9:03 PM, Gerard45 wrote:

    Well before those guys go Public I'd seriously consider buying out http://www.japanesefriendfinder.com I think for these guys to be taken seriously they should have all of the ethnic groups in their control as it is made to seem.

    They have AsianFriendfinder and that would have been enough if they hadn't started Korean and Chinese friendfinder but now that they have those sites wouldn't it have been a SMART move to throw a few million to whomever owns JapanesefriendFinder.com ? they have ALMOST an entire group of nationalities and they drop the ball on locking on to Japanesefriendfinder.com ha ha ha they had better get off of the pot and figure this out.

    I'm sure that the JapaneseFriendFinder.com guys have been cleaning up with paid memberships for a long time. I wonder what added value Japanese Friend Finder.com will experience as a result ...

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 800322, ~/Articles/ArticleHandler.aspx, 10/31/2014 9:05:42 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement