Bullshit reaches limit - AFF and Iporn scuttlebutt

[RawAlex]

What I find interesting is even the most generous suckup on the zoo is seeming to understand that AFF appears to be in serious trouble.

The basic problem: the purchase of AFF (and probably Danni Cash) was done entirely in debt. It is likely that Andrew and Lars were only going to get the big money when this whole deal went public. What they don't appear to have figured on was the world economy going to crap, the inability of the company to show a path to profitablity, and so on.

The IPO appears on the surface to be massively overpriced, as even a generous web value of twice yearly revenue is barely equal to the stock offering. There is little underlying asset value (except for the software used to the run the site and the database, which I suspect is packed full of dead profiles). Their inability over the past few years to raise non-membership revenues (such as by advertising) is a real problem as well. The vast majority of their users are on the "adult" side of the business, which means they can't even run google adsense on their pages. I find it pretty amazing that they are unable to work their traffic in a manner to raise more income from their users.

I also don't understand the traffic issues: If their signup rate overall is say 1 in 200 (being nice here), and they turn a couple of million users a year (1 million end of period users 20% churn means you turn them all twice a year, thus 2 million signups). That means they are managing at least 200 million direct program clicks a year, plus significant amounts of returning client traffic (say 20 visits per user, that is another 40 million hits a year). So with a quarter of a billion hits, it is shocking that they cannot seem to make any real income off that traffic.

Something isn't right - and it suggests that either traffic is way off, or they truly are not good traffic managers and never had anyone on staff to do it.

[Fausty]

Originally Posted by RawAlex

What I find interesting is even the most generous suckup on the zoo is seeming to understand that AFF appears to be in serious trouble.

Sorry - had to read that sentence a few times to make sense of it. . . I kept seeing "suckup" and "zoo" and assuming someone was talking about me.

The basic problem: the purchase of AFF (and probably Danni Cash) was done entirely in debt. It is likely that Andrew and Lars were only going to get the big money when this whole deal went public. What they don't appear to have figured on was the world economy going to crap, the inability of the company to show a path to profitablity, and so on.

To be fair, this hardly makes the AFF acquisition unique - or even unusual. Lots of purchases are done with a cash chunk and the balance carried as debt. Often, the full purchase prices is paid out over time, and subject to adjustments on the basis of post-acquisition performance of the combined companies. It's not really "shady" in and of itself - in fact, if you buy a company and cash-up the sellers 100%, they have next to no incentive to ensure the integration works, and the combined company succeeds - after all, they got their cash and they head for the exit.

In contrast, if there's a substantial debt carry, they have incentive to ensure the combined company at least does well enough to pay down that debt. Many IPOs have gone out solely on the basis of a need to deal with this kind of post-acquisition debt and, in general, Wall Street isn't opposed to that kind of deal - if the numbers work and demand is there. Heck, the "classic" model for that is buying a company with borrowed money, taking it out in an IPO, raising cash to pay down the acquisition debt, and being left with a majority equity stake in a debt-free company for essentially $0 invested. The Platonic form of LBO.

The vast majority of their users are on the "adult" side of the business, which means they can't even run google adsense on their pages. I find it pretty amazing that they are unable to work their traffic in a manner to raise more income from their users.

It continues to amaze me that the "adult" side of the net gets redlined off as "no-man's-land" for advertising networks - it's absolutely stunning! Sure, I know some advertisers would piss their pants if their precious brand were tarnished by association with anything as horrific as human (well, let's stick with "mammalian") sexuality - though generally violence and bloodshed are no problem - but is it really true of ALL advertisers?

I mean, even if 20% of brands are too candy-ass to run ads on adult sites that still leaves 80% of the advertising market. Yes, google (and the merchant associations) have allowed themselves to be ruled by "lowest common denominator" moral fundamentalists, but that seems more a business opportunity for someone else than an insurmountable obstacle.

No, AdBrite does NOT count - they can't find their ass with two hands and a proctologist to assist.

Regards,

Fausty