FriendFinder Networks (NASDAQ: FFN) went public on Wednesday, May 11, 2011 at $10 a share.  It is now trading at under five dollars a share. Spreads are wide and the volume is sparse, demonstrating the lack of support for the stock.  Any upward bounces in the stock should be utilized as the opportunity to establish a short position in atrading strategy.  The numbers explain why and the story behind them is not pretty.

FriendFinder Network is the publisher of Penthouse Magazine.  It also operates numerous websites.  It has been trying to go public for three years.

At first, the goal was to raise almost $500 million dollars. There were not enough friends to be found to support that.  Then last year, it attempted to IPO for $240 million.  Same story: not enough friends to find.  Finally, FriendFinder network was able to raise $50 million.

The biggest asset of the company is goodwill.    Annual sales for the last three years have been around $350 million.  It has half a billion dollars in debt on the books.  Losses each year average about $40 million.  A negative article about the stock in The New York Times has not helped.  Again, short this stock. 

Money from the IPO for FriendFinder Network is going to pay down debt.  Of the debt, one third is held by senior management.  These executives will also receive large bumps in compensation with the “increased responsibility” of managing a company that is now publicly traded.  This should not be the case for long as the shares are headed seemingly in one overall direction.