United Online (NASDAQ:UNTD) has definitely enjoyed a nice run into the upcoming partial spin-off and IPO of its Classmates.com unit.  This spin-off is what has contributed to huge gains in the stock under the current hype and hope for social media (look back to August). 

As far as when this will actually hit the market, that depends uponwhom you ask.  Since a filing of terms went in last week, there was abrief hope that it would hit this week.  But many think next week orthe week after next will be the actual IPO.  The truth is going to boil down toone thing: "market conditions."  For starters, Classmates.com has some value as you can see in the stock, but it looks and feels like investors may have gotten carried away with social networking valuations and maybe even gotten carried away with the VMware/EMC spin-off model comparison. 

United Online has a market cap of $1.16 Billion today based upon a $17.10 stock price.  It is going to keep and hold a majority position in Classmates, which will have a fully diluted market cap of $600 million to $720 million based upon a $10 to $12 per share IPO price range and only about 17% of the shares being listed in the float.

We have reviewed this on and off for the Special Situation Investing Newsletter and United Online even made potential internet buyout target list on our "Small Cap Internet Watch List, Part I of II" for the special situation subscribers when this was at $15.74 on October 21, 2007.

This run in United Online has gone up too much in anticipation and as it stands today in a market that demands rationale.   If Classmates was going to be a top destination that would be one thing, but it seems like this has a long way to go before Classmates.com can rival MySpace, Facebook or LinkedIn.  Classmates.com is a unique social media and social networking destination.  I have used it personally, but frankly it will not take out the business.  Alexa.com shows it having slipped in page rankings as of late.  Classmates’ social networking sites had more than 50 million registered accounts and 3 million paid accounts as of September 30.

The problem in saying something has run too much is that it can run on and on, i.e. Baidu.com reminiscent of tech bubble days and VMware and the VMware conundrum are two prime examples where a stock can run and run.  But both of this did come back down to earth, and in quite a hurry.

We will be sending out more detailed information regarding the IPO terms and implications to our open email distribution list a couple times ahead of the offering, regardless of today’s opinion after going through waves of up and down market days.

Jon C. Ogg
November 27, 2007

Jon Ogg produces the 24/7 Wall St. Special Situation Investing Newsletter; he does not own securities in the companies he covers.

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