FriendFinder Reorganizes Into 14 Units, Swings to Loss

Rhett Pardon

BOCA RATON, Fla. — FriendFinder Networks Inc. has reorganized its business operations by splintering the company into 14 divisions to make each more accountable to the bottom line.

The move, announced Tuesday in a conference call over third-quarter earnings, creates units such as casual dating, social commerce, alternative lifestyles, gaming and interactive video for the adult entertainment and social networking giant. Each division will be responsible for its own financial performance.

"We believe that designated business units will help us better deploy technology and drive revenue in business units that have traditionally lacked focused attention and dedicated resources," said Marc Bell, FriendFinder's CEO.

FriendFinder said revenue for the third quarter of 2011 was $82.7 million, a five percent drop compared to third-quarter figures a year ago.

The company attributed a drop in revenue to a decrease in traffic and a decline in new subscribers and renewal orders primarily in European markets. Social networking revenue was offset by an increase in live interactive video.

Income from operations for the third quarter was $14.7 million, a 32 percent drop from third-quarter figures a year ago. The company said that it attributed the drop to a lower gross margin and an increase in product development, selling and marketing, and general and administrative spending, which increased due to an increase in headcount across the company as it develops its business units.

The Boca Raton, Fla.-based company saw a net loss for the third quarter of $5.4 million.

"While we achieved certain business objectives, we are not satisfied with our overall performance in the third quarter," Bell said. "Europe remains a challenge where we have experienced lower user-conversion rates and transaction-acceptance rates."

But Bell said that the company, which went public in May, has begun to see an increase in registrations in Europe and that South America revenue continues to grow as a result of increased marketing efforts and the introduction of alternative payment methods and varied affiliate payment terms.

"Even though the quarter was challenging, we remain excited by our future growth prospects," said Bell, noting that live interactive video business continues to perform well, increasing revenue over five percent to $20.7 million in revenue in the third quarter.

Bell also said during the quarter that entertainment revenue increased 7.2 percent to $5.6 million and that it completed the acquisition of JigoCity and

FriendFinder stock price has dropped substantially since the May initial offering at $10 a share. FriendFinder traded Tuesday on the Nasdaq at $1.45 a share.