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Tickers in this Article: UNTD, T, Q, CMCSA, VZ
The term "Old School" is a great concept for motorcycles and manners, but a lousy concept for dentistry and technology.

The obvious question, then, is why parse United Online (Nasdaq:UNTD), a company long associated with old-school dial-up? In fact, its lead internet brand, NetZero, was a leader in the heady days of the late 1990s when the market swelled with internet service providers exchanging free connectivity for eyeballs.

As we're all well aware, that model fizzled, and the free ISPs either shut the door or moved to the pay space. United chose the latter, and still resides in the pay space with it value-priced Netzero and Juno services, both of which are available in 20th-century dial-up and, to a lesser degree, 21st-century broadband.

Competition in the ISP space is fierce, to say the least. United is a small-fry in a market ruled by giants, including Verizon (NYSE: VZ), Qwest (NYSE: Q), Comcast (Nasdaq: CMCSA), and AT&T (NYSE: T) -- in other words, every phone company or cable provider in the country.

Is Perception Always Reality?
Investors are skittish, and they have every right to be. United ended 2006 on a flat note, which, admittedly, is antithetical to technology investing. Revenues for 2006 were $522.7 million versus $525.1 million in the prior year. Meanwhile, margins decreased because of higher R&D expenses, which, in turn, caused net income to drop to $41.2 million, or $0.62 a share, versus $47.1 million, or $0.74 a share, in 2005.

A perception of stasis can be a death blow to a technology issue, and United seems stuck with that perception, which is one reason its stock has been trading in a $10 to $14 range for the past two years.

But in this case, perception might not be reality. Yes, revenue growth was nonexistent last year, but that was primarily due to the contraction in the ISP division and with charges associated with writing down certain VoIP assets and goodwill from the 2005 PhotoSite acquisition.

But United offers more than simple internet connectivity. It offers content and social networking as well. On that front, the company's lead brands include the ubiquitous pop-up Classmates.com and online loyalty marketer MyPoints, a service where members are rewarded with points for clicking or shopping through MyPoints emails, for shopping through the MyPoints Web site, and for completing surveys.

Revenue in these segments grew to 33% of the company's 2006 fourth-quarter revenue, while advertising revenue - another key growth segment - posted a fourth-quarter increase of 101% compared to same 2005 quarter.

Cash and Carry
I'm a patient investor and a balance sheet fan, and United's balance sheet is sterling. The company finished 2006 with $162.4 million in cash and virtually no debt. Moreover, it has been using its cash to buy its stock and to fund a quarterly dividend of $0.20 per share. Management believes its strong balance sheet and free cash flow gives United the flexibility needed to continue to execute its diversification strategy, and so do I. (To learn more, read Breaking Down The Balance Sheet and What You Need To Know About Financial Statements.)


At current prices, United is trading at only five times cash flow. Its key growth asset, Classmates.com, is one of the largest social networks on the Web, but the market is currently valuing it just a hair above zero, focusing instead on the company's declining ISP business.

If Classmates continues to post strong gains, the focus will change.

And while you're waiting for the change, you wait with the safety of a company trading for 13 times 2007 EPS estimates, a debt-free balance with roughly $2.50 in cash per share, and a voluptuous 5.7% dividend yield.

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