United Online Inc. has spent 11 years providing visitors to its social media and memorabilia website Classmates.com with a walk down memory lane. Now it’s time, the company has decided, to get off that path and focus on the future. The Woodland Hills business sold its Classmates Inc. subsidiary and the Classmates website to Intelius Inc. of Bellevue, Wash., which is owned by Miami private equity firm HIG Capital, in a $30 million cash deal that closed Aug. 11. United Online plans to use the money to strengthen its two other business segments where it says it sees future growth: its e-commerce and customer loyalty websites and its Internet services business. It intends to use the money to develop new services and to help acquire similar companies. United Online has owned Classmates.com since 2004, and has spent time and money gathering and digitizing memorabilia, such as old television shows, photos, names and 300,000 yearbooks that users could view online or buy from the site. It debuted in 1995 as one of the Internet’s first social media sites and a platform where former high school classmates could reconnect. But United Online Chief Executive Francis Lobo said the site no longer fits the company despite being profitable in its most recent quarter, which ended June 30. Its business segment, which also includes social media sites in Europe, had sales of about $19 million, down from $21.3 million in the year-ago quarter. Net income grew for the segment, though, to $4.7 million from $2.6 million last year. Plus, paid subscriptions had grown for the second straight quarter, the first time since 2010, and new paid subscribers grew 75 percent year over year. United Online just started reporting sales and earnings of its social media sites as separate from its customer loyalty sites for the first time this quarter. “The decision to sell Classmates is about the future growth and direction of UOL as a company,” Lobo said. “Our goal is to develop strong products to fuel growth within our key segments, and to identify acquisition opportunities that are strategic and complementary.” Classmates.com United Online is made up of a patchwork of businesses it has acquired since it was formed in 2001 out of a merger of dial-up Internet access providers NetZero Inc. and Juno Online Services Inc. The company still sells dial-up Internet access, but also sells mobile broadband access and cellphones. In 2006, United Online bought the customer loyalty marketing business MyPoints.com. It also bought the operators of flower delivery service FTD.com in 2008 and sold it in 2013. Classmates.com sells subscriptions to the website, yearbooks it has digitized and some advertising, but many of its services are free. Also, few people sign up to pay for its services on their first visit, and the company said it has had to convince them to return and pay for additional features in order to make money from subscriptions. Daniel Kurnos, an analyst based in Boca Raton, Fla., who follows United Online for Benchmark Co., said Classmates.com is a nice cash cow but is not something that would grow United Online’s overall business. “$30 million in cash … removes the drag on revenue growth and eliminates any unnecessary distraction from what was considered a nonstrategic element or focus,” Kurnos said. Loyalty’s future United Online sees its future in its other business segments – providing Internet access, and in its MyPoints customer loyalty website and program that rewards shoppers with points they can trade in for cash, gift cards or products and services from participating vendors and retailers. MyPoints, which has 9 million members, uses people’s interests, purchasing behavior and demographic profiles to form targeted promotions for advertisers. Advertisers pay United Online when it sends members emails and they respond by earning the reward points. The site also makes money by selling gift cards. In February, the company debuted the Swappable mobile application for the MyPoints program that allows users to trade, buy, share, personalize and swap gift cards from different retailers. Lobo said loyalty programs such as MyPoints offer a lot of opportunity for United Online as e-commerce continues to grow. Plus, digital gift card sales are growing through these types of sites. “Gift card sales are growing via loyalty sites – in fact, we’ve seen a 130 percent year-over-year increase in gift card purchases across Swappable and MyPoints during the second quarter,” Lobo said. “Given the e-gifting industry is expected to reach $14 billion in the next two years, we see Swappable and MyPoints fitting naturally into that growth.” Benchmark’s Kurnos said customer loyalty is growing in popularity and while MyPoints has a loyal user base, and nice merchant penetration, the company has to grow it. “It’s the right way to build the business and I think that certainly should be the area of focus for them, and one way they can get their consolidated top line to return to growth in 2016,“ Kurnos said.
