So much for the first pure-play social networking IPO in U.S.: United Online (NSDQ: UNTD) has canceled the proposed IPO of its Classmates.com social networking unit. The company originally announced its plan to hive off the company in August, and in late November it said it expected to raise $177.7 million via the sale. But, citing the standard “market conditions,” the company now says that such a move wouldn’t be in the interest of stockholders. In other words, the interest wasn’t there. While there had been some excitement over a social networking pure-play IPO, Classmates.com, with its subscription-driven business model and earth-bound growth rates, couldn’t fully capture the buzz. United Online said it will take a $4.5-$5.5 million charge in Q4 associated with the aborted process. Release.

A recent report from Cowen & Co. analyst Jim Friedland spells out exactly why United Online couldn’t cash in with Classmates. One line sums up his thesis: “We expect the Classmates.com subscriber base to peak in the first half of 2008, followed by a steady decline to zero by 2012.” Much of the report hones in on the fact that Classmates is no Facebook. The biggest difference is that Facebook is free and offers far more robust features. Other factors weighing on Classmates:

-- Classmates has little value for young users, since there’s no need for them to re-connect; they’re already connected through other sites. Meanwhile, Facebook is making major inroads into Classmates’ adult demographic.
-- User engagement is 95 percent lower than on Facebook, suggesting that users see little value in the service they’re paying for
-- The company’s auto-renewal system has come under investigation at the FTC, potentially causing churn to spike.

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