Adult Friendfinder’s ads habituate the seamy side of the web. They are the dating site for the adult internet, offering sex instead of love, and delivering (probably) neither.
They take dodgy dating sites to an entirely new level, with ads that promise a naked beauty in your postcode is just waiting for you to turn up. They must pay a fortune for those ads, and no doubt help support a large number of adult oriented sites. Even Google gets in on the act.
Never mind that the same woman is also waiting in every other postcode and country in the world, and never mind that the sign up process guarantees that you will be advertising to the world that you have one of several sexual deviances. If you do happen to be stupid enough to post a naked picture of yourself, then you just might be the next naked beauty offered to countless surfers worldwide.
So it seems that AdultFriendFinder is in big trouble – not with the law, but with debt holders.
Somehow they have managed to raise $436m in debt, most of it short term, and with just $43m in the bank, and an unforgiving financial climate, they need money fast.
“Here’s The Tech IPO You’ve Been Looking For: A Debt-Ridden Collection of Porn Sites And Social Networks”
Amazingly they made $262m in revenue for the nine months to September 2008, and $17.6m in operating income before interest costs – which were $60m.
I guess the borrow lots of money to increase revenue approach worked, but sadly the EBIT didn’t cover the interest payments.
They had 59m unique visitors in the same 9 month period, believing, apparently, that those visitors came for:
our focus on continuously enhancing the user experience and expanding the breadth of our services.
Yeah right. They came for the naked women.
As did the one million paying members per month (off 4m new members a month – that’s a pretty low sell through rate). The number of subscribers has not really changed from year to year, and churn is 18%-ish.
Those AdultFriendFinder ads were placed in 110,000 marketing affiliates, an amazing number, and they paid $46m to those sites as a result – that’s $418 each on average, and that’s a heck of a lot of sex sites.
AdultFriendFinder’s prospectus reckons that they can increase advertising revenue from 1% of sales to much higher. But who would want to advertise there?
Indeed the list of caveats on the prospectus is entertainingly long, ranging from “We have a history of significant operating losses and we may incur additional losses in the future.” to “Privacy concerns could increase our costs, damage our reputation…..” and “Because of our adult content, companies providing products and services on which we rely may refuse to do business with us.
There is more – “Our liability to tax authorities in the European Union for the failure of Various and its subsidiaries to pay VAT on purchases made by subscribers in the European Union could adversely affect our financial condition and results of operations” and the kicker is “You may find it difficult to sell our common stock.”
The IPO is looking for $460m, and it will be used to pay down that debt. That’s not exactly an interesting proposition, and like AdultFriendFinder’s other propositions I’m going to give it a wide berth.
If the IPO fails then it’s most likely goodbye to a company that frankly should never have been able to raise that much debt, and one that demonstrates that communities must be built organically not bought through advertisements.