Marketers like to say that sex sells. FriendFinder Networks, in search of cash to pay off nearly $400 million in debt, is going to test that proposition.
FriendFinder, which operates a group of sex-oriented social networking sites and owns Penthouse magazine, is trying to sell up to $460 million in stock to investors in one of the most challenging markets ever for initial public offerings.
According to a prospectus filed Tuesday with the Securities and Exchange Commission, the company, based in Boca Raton, Fla., has violated the terms of its debt agreements and may not be able to remain in business unless it raises money through the initial public offering or some other method.
The company intends to use about $400 million of the stock offering to pay down debt.
On the surface, FriendFinder might seem like an easy way for investors to cash in on the popularity of sex on the Internet. The company’s flagship Web site is similar to Match.com and other mainstream dating sites, but aimed explicitly at sexual liaisons.
The company also has created sites aimed at senior citizens, Asians and Christian singles.
FriendFinder said its sites averaged more than one million monthly subscribers generating an average monthly revenue of $19.06 during the first nine months of 2008.
The company, however, warned that it has a lot of competition and a history of losing money. It posted a net loss of $29.9 million on $48 million in revenue in 2007. For the first nine months of 2008, FriendFinder had operating income of $17.6 million and a net loss of $32.3 million on $244 million in revenue.
By comparison, IAC’s online personals businesses, which include Match.com and Chemistry.com, are significantly more profitable, with operating income of $50.7 million on revenue of $277 million in the first nine months of 2008.
FriendFinder faces numerous challenges in raising funds. The financial crisis has made it difficult for even seasoned companies to raise money from investors, and the market for initial public offerings has virtually dried up, with just a handful of technology companies managing to sell shares this year and venture capitalists predicting that 2009 will be worse.
In addition, the sexually explicit nature of FriendFinder’s content could make it difficult to attract advertisers, which the company has described as a major source of future growth.
Ning, a platform that lets people create their own social networks, announced in early December that it will discontinue support for its adult-themed communities.
Gina Bianchini, chief executive and co-founder of Ning, said the decision was driven in part by a concern that advertisers are uncomfortable being associated with sexual content.
In its prospectus, FriendFinder noted that some banks and credit card companies are reluctant to do business with it because of the nature of its business.
The offering is being underwritten by Renaissance Securities (Cyprus), a Moscow-based investment bank.
FriendFinder Networks was formed after Penthouse Media acquired Various, operator of AdultFriendFinder and other sites, in December 2007 for $500 million and renamed the combined company.