Best S-1 I Have Read Today

by Mr Juggles will go public some time this week. Somehow, they have managed to convince top-tier banks to underwrite this offering. Did the bankers read the S-1 they put together for this company?

From the S-1, here are some excerpts from the company’s description of its business:

We operate leading online social networking and loyalty marketing services under our Classmates and MyPoints brands…Using our interactive tools and features, our members have contributed to our social networking Web sites a substantial number of distinct, relevant pieces of content, such as names, school affiliations, profiles, biographies, interests and photos…On our social networking Web sites, we enable users to locate and interact with acquaintances from school, work and the military…This valuable content also brings existing members back to our Web sites, with a significant number of our members visiting our Web sites on a recurring basis over many years.

Contrast that with a few risk factors the company highlights for this offering:

A significant majority of our paying subscribers are on plans that automatically renew at the end of their subscription period and we have received complaints with respect to our renewal policies. The sales and marketing practices of Classmates Online are currently subject to an inquiry by the United States Federal Trade Commission, or FTC.

Our success is dependent upon our social networking members interacting with our Web sites. Currently, the network effect on our social networking Web sites is limited, and the vast majority of our member activity is within our high school communities. Our members do not visit our Web sites frequently and spend a limited amount of time on our Web sites when they visit. In addition, only a limited number of our social networking members post photographs and information about themselves, engage in message board discussions, view other members’ profiles or participate in the other features on our Web sites. [Ed: our emphasis]

Recommendation: Avoid companies that cite their ongoing failure to execute their business model as a risk factor.

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