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The Social Network Facebook Can't Beat

FriendFinder's adult angle offers some safety from rivals


Over the years, Facebook has been a relentless competitor. It has crushed tough rivals like MySpace and Friendstar. But Facebook has also contained the Internet giants like Google (Nasdaq:GOOG) and Microsoft (Nasdaq:MSFT).

Now the social network has 700 million active users and a market value of over $80 billion (according to the latest trades on SharesPost.com). Within a year, the company is expected to have a public offering which is likely to be historic.


Yet there is an area of social networking that Facebook really can't venture into: adult entertainment. Basically, the company needs to have a brand-friendly environment to capture a growing share of online advertising.

Let's face it, this is a big busines that forces the question: is there a way for investors to play the adult-entertainment angle for social networking? There is — the company is FriendFinder Networks (NYSE:FFN). Based in Silicon Valley, it operates various sites that allow men and women to, well, connect. Some of the brands include AdultFriendFinder.com, Amigos.com, AsiaFriendFinder.com, Cams.com, FriendFinder.com, BigChurch.com and SeniorFriendFinder.com. Features include chat, instant messaging, video sharing and blogs.

FriendFinder became came public about a month ago at an offering price of $10. Unfortunately, the stock plunged and is now fetching $5.80.

But with its first quarterly report as a public company, FriendFinder was able to show some momentum. Adjusted pretax earnings increased 33.3% to$27.2 million. And the company continues to launch new sites.

True, FriendFinder has substantial debt, coming to $543.5 million. But with its cash flows, it has been continuing to pay the amount down. The IPO was also a big help.

FriendFinder has more than 200 million unique monthly users that come to its sites and there are more than 1 million paid users. Keep in mind that these figures are larger than for those at LinkedIn (NYSE:LNKD), which has a market value of $7.35 billion. FriendFinder's market cap is a mere $50 million.

Of course, FriendFinder isn't for everyone, and it's probably too taboo for many investors – and still risky, in light of its small market cap. But it's certainly a social-networking play and has good assets.

More importantly, it won't have to worry about Facebook or LinkedIn.

http://www.investorplace.com/44622/the-s…