United Online (Nasdaq: UNTD ) may have reported a perfectly respectable increase in quarterly profit today, but it's the future that has investors worried. After all, it's commonly thought that ISPs that are best known for dial-up service will have to evolve or die. United Online, which is the name behind no-frills, low-cost ISPs Juno and NetZero, reported third-quarter net profit up 42% at $12.6 million, or $0.19 per share. Revenues increased 25% to $110.7 million.
In conjunction with its earnings announcement, the company said that it will acquire Classmates.com, for which it will shell out $100 million in cash. The company said the acquisition is part of its goal to acquire more subscription-based consumer Internet services.
It's not too hard to believe that discovering long-lost acquaintances may be one of the most popular Internet pastimes there is. Meanwhile, Classmates.com also functions like many of the social networking sites. (Of course, one might argue that it's simpler -- and cheaper -- to just Google (Nasdaq: GOOG ) your long-lost prom dates.) In all seriousness, Classmates.com has gotten a lot of recent press coverage as a way to find old flames from the past (and that's one way in which social networking takes some of the spotlight off online dating).
United Online says Classmates.com possesses 10.3 million monthly active accounts and more than 38 million registered members, "giving it a significant database of self-registered personal information." The move appears to be clearly in order for United Online to advertise to a large user base.
And of course, that's where United Online needs some boosting. The company added only 9,000 net new subscribers during the quarter. Meanwhile, perhaps not surprisingly, the company ratcheted down the number of total paying subscribers it expects to have by Dec. 31, saying it now expects 3.25 to 3.35 million total paying subscribers; the old guidance was for between 3.3 million and 3.5 million.
United Online -- best known for cheap or free dial-up Internet -- faces the same tough climate that's forced many formidable rivals in the consumer Internet market, including Time Warner's (NYSE: TWX ) America Online and EarthLink (Nasdaq: ELNK ) , to try new and different ways to woo their customers, who are rapidly switching to broadband, often through telephone and cable companies.
For now, United Online can pinch its pennies to grow profits at impressive percentages. But, to a certain degree, there is still a lot of "uncertainty online."
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Alyce Lomax does not own shares of any of the companies mentioned.