Social Networking or Porn: FriendFinder IPO Prices, Sex on Wall Street (FFN)

FriendFinder Networks Inc. (NASDAQ: FFN) has managed to price its initial public offering, albeit at the lower end of its expected price range.  The company is the adult-themed social networking site.  Many sites consider themselves “The Facebook of (fill in the blank)” and this one for all practical purposes is a porn social networking site with brands under the “FriendFinder” names as well as the Penthouse brand.

The company priced 5,000,000 shares of common stock at $10.00 per share for gross proceeds of $50 million before fees and commissions.  The use of proceeds will be to pay down a portion of its existing indebtedness.  The prior amended SEC filing had 5 million shares in a price range of $10.00 to $12.00 per shares for the pricing.  One issue to consider is that FriendFinder is being viewed as a disappointment.  The first IPO filing also went back to before the height of the recession at the end of 2008, when it filed to raise up to $460 million.  Today’s sale is a mere $50 million.

The company has listed some 26,328,895 million shares as its total common stock outstanding after this offering.  If you just use the outstanding shares, FriendFinder’s $10.00 per share pricing would value the company at more than $263 million.  Officers, directors, and principal shareholders will own about 75% of the issued and outstanding shares.  What investors need to know about this market capitalization is that it is not really a fully diluted value.  The filing notes that there will be an additional 13,058,608 shares of common stock underlying certain preferred stock, warrants, notes, and options.  If we are to add the two, then a fully diluted market capitalization (if that can be used here) would be over $393 million.

The joint book-runners of the offering were Imperial Capital and Ladenburg Thalmann.  The company also granted these underwriters a 30-day overallotment option to purchase up to an additional 750,000 shares at the IPO terms. 

The company’s most heavily visited websites (with the ‘.com’ omitted) are as follows: AdultFriendFinder, Amigos, AsiaFriendFinder, Cams, FriendFinder, BigChurch and SeniorFriendFinder.  Some of its other properties are Penthouse, MillionaireMate, GetItOn, and HotBox. The company also claimed the following: a network of over 38,000 websites; more than 298 million members in more than 200 countries; a December-2010 figure of over 196 million unique visitors in its network of websites based on comScore data; adding more than 6.4 million new registrants and more than 3.9 million new members each month on average.

FriendFinder’s revenue for 2010 was $346.0 million, primarily derived from online subscription and paid-usage for products and services.  About 70% of 2010 net revenues were generated through its targeted social networking technology platform and about 22% was derived from its live interactive video technology platform.  About 1% and 7% of total 2010 net revenues were generated via its premium content technology platform and its non-internet entertainment business. 

Here is what the company previously said about its 2010 revenues per user… “Average Lifetime Net Revenue Per Subscriber is calculated by multiplying the average lifetime (in months) of a subscriber by ARPU for the measurement period and then subtracting the CPGA for the measurement period. Our Average Lifetime Net Revenue Per Subscriber increased from $79.34 for the year ended December 31, 2009 to $80.17 for the year ended December 31, 2010.”

JON C. OGG