The capital markets are enjoying a bit of a renaissance in maniacal, pre-IPO valuation for Internet companies, more specifically, social networking businesses. The 900-pound gorilla of social networking, Facebook, has an estimated value of $50 billion or so thanks in part to the fact it decided to be Goldman Sachs’ (NYSE: GS) prom date. Groupon, a great idea that’s being easily copied by others every single day, must be on safety date status with a purported valuation of a paltry $10 billion.

I will concede that social media, although kind of creepy at times, has completely changed the game in marketing and the Internet as a whole. The fact that advertising messages can be cheaply and effectively targeted toward a small group or even individuals is nothing short of amazing. So how does an investor get in? You can get a piece of Facebook if you’re a bazillionaire, Goldman Sachs client. And there are social media pieces to Yahoo! (Nasdaq: YHOO), AOL (NYSE: AOL), or Google (Nasdaq: GOOG), certainly. But those stories may seem a bit tired and pedestrian, and undervaluation is debatable. So why not take a look at United Online (Nasdaq: UNTD)?

United Online’s history is almost a case study for value investing. The company was formed in 2001 (post Internet bubble) with the merger of Net Zero and Juno; two Internet service providers (ISPs). Coming off of the Internet full tilt boogie party, neither Net Zero nor Juno had the name recognition of some of the bigger online players. However, they weren’t complete unknowns either. Net Zero was recognized for being a value priced alternative to other dial up services. A year later the company, now known as United Online, reported a GAAP profit — no small feat back in the day.

From there on, United Online picked through the trash heap of Internet history, buying assets like Kmart’s failed Bluelight.com, About.com’s consumer web hosting business, along with Classmates.com for mere cents on the dollar. The crowning achievement was the acquisition of FTD Group (yes… the Mercury Man flower guy) in 2008. The FTD brand, which works as both a retail and wholesale channel, is more than 100 years old and is displayed in more than 40,000 retail locations around the world.

Be like the company: buy it cheap and reap the rewards…
To the naked, untrained eye, it would seem that United Online was throwing away capital. But drilling down, you discover that United Online built a sturdy Internet infrastructure for extremely cheap. And those efficiencies have shown up in the numbers.

United Online shares trade at about 1.1 times book value with a trailing price to earnings (P/E) of 10.2 and a dividend yield of about 6.8% — classic value in my book. But the story gets better…

Revenue has nearly doubled in the past four years, from $513 million to $920 million. That puts the stock price at just 0.6 times sales, United Online also has $100 million in cash on the balance sheet. That comes out to about $1.14 per share — significant for a stock barely trading at $6. And at around $5.96 a share, the stock price is off 75% from its 2003 high of $23.

OK, United Online isn’t exactly a pure social media play. But the classmates.com part of the business, recently rebranded as “memorylane.com,” boasts the largest collection of high school yearbooks online (…and I hope to God they don’t have the one from my freshman year), and it’s a genuine social networking medium. Launched in 1995, it was actually one of the first social networking websites ever. Mark Zuckerberg probably wasn’t even allowed to watch “Beavis and Butthead,” much less surf the Internet, in 1995.

Action to Take –> But by owning United Online, you get three distinct revenue streams: online retail through the FTD division, social media and content with Memorylane/Classmates.com, and lastly, probably the most discounted piece, telecom backbone via Juno and NetZero. That’s a ton of valuable, cash flow-producing assets. A 12-month target of $7 (exclusive of yield) makes sense, assuming a 33% bump in book value. That’s 18% higher than the current stock price and still a discount to the company’s enterprise value of about $7.60.