Company Overview
The Meet Group, Inc. (NASDAQ: MEET) operates a portfolio of location-based social networking applications. The applications can be accessed on a variety of mobile platforms including iOS, Android, and the web. In order to appeal to a wide selection of consumers, Meet offers its social networks through different branded applications.
Meet monetizes its platforms through advertising, in-app purchases, and paid subscriptions. The company’s online marketing capabilities allow customers to display advertisements in multiple formats across different locations. Meet is headquartered in New Hope, Pennsylvania.
Products and Services
As noted above, Meet has a portfolio of four applications allow users to meet and interact with one another:
MeetMe is an application that allows users to discover and meet new people. MeetMe includes features such as Chat, Meet, Discuss, and Live Video.
Skout, like MeetMe, allows users to connect with one another based on their location. Features include Chat, Meet, Interested, and Buzz. Skout was founded in 2007 and acquired by Meet in 2016.
Tagged / hi5 are sister brands originally created by social networking start-up if(we) that were acquired by Meet in April 2017. Both applications have overlapping user bases and offerings.
Ninety percent of Meet’s mobile revenue comes from advertising, and the remaining 10 percent is generated by in-app purchases and subscriptions:
In-App Purchases – Users may purchase credits (or earn them by completing third-party offers) which can be used to boost the visibility of their profile or meet people in other cities.
Subscriptions – Users may purchase a subscription to MeetMe+ or Skout Premium to receive extra features and the ability to suppress mobile advertisements.
Including Tagged and hi5, Meet has a total of 2.8 million daily active users and 130,000 new user registrations per day. While more than half of company’s daily active users are international, the United States generates 80 percent of the company’s revenue:
Source: Company Presentation
Across its user base, Meet generates more than 10 billion mobile ad impressions per month. The company has more than 100,000 monthly advertisers, and the top marketing categories are retail, mobile applications, auto, and restaurants. Meet has robust advertising operations to support monetization efforts including partnerships with 2,000 ad networks, 50 direct integrated exchanges / demand-side providers, and two direct header bidding partners.
Market Overview
In 2016, there were more than 2.1 billion smartphone users globally. As consumers spend more time on smartphones, marketers are devoting more resources to mobile advertising. As shown below, print and television advertising budgets could shift to mobile:
Source: Company Presentation
In 2016, the U.S. spent $46.7 billion on mobile advertising. Going forward, the company projects a 17 percent compound annual growth rate, with total spending reaching more than $100 billion by 2021.
Recent Developments
- On April 3, 2017, Meet closed its acquisition of if(we), creator of the Tagged and hi5 mobile applications. Concurrently, the company rebranded from MeetMe, Inc. to The Meet Group, Inc. to better reflect its diverse portfolio of assets.
- On March 15, 2017, the company closed a public offering of 9,200,000 shares of common stock at an offering price of $5.00 per share. The company plans to use the net proceeds for general corporate purposes, funding a portion of the if(we) acquisition, and potential future acquisitions.
First Quarter Earnings Review
Total revenue for the quarter ended March 31, 2017, increased 51 percent year-over-year to $20.1 million. This growth was supported by a 61 percent year-over-year increase in mobile revenue due to increased mobile impressions from the Skout acquisition. Operating expenses increased to $19.6 million, a 76 percent increase from the first quarter of 2016.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $4.8 million, a 30 percent increase from the same period one year ago, yielding an adjusted EBITDA margin of 24 percent. Adjusted EBITDA primarily removes the impact of stock-based compensation and acquisition and restructuring charges. It is also a primary operating metric for the company.
Cash flow from operations increased from $6.8 million in the first quarter of 2016 to $8.7 million. At March 31, 2017, the company listed a cash balance of $74.5 million, including $43 million generated by the aforementioned public equity offering. The company noted that $60 million was used in April 2017 to acquire if(we).
Outlook
By rebranding itself as The Meet Group, it appears that the company is poised to continue making acquisitions. Meet does not have any long-term debt, and it recently raised $43 million of equity to help fund the if(we) deal.
Organic user growth has been relatively weak – average daily users for MeetMe and Skout declined slightly in the fist quarter. However, Meet intends to boost its marketing budget to increase users internationally and in the U.S. New video features have also shown promising returns for user engagement.
The company has strong advertising operations and a demonstrated ability to monetize its applications. Meet also has experience integrating acquisitions into its existing ecosystem. Therefore, it is likely that Meet will pursue other deals to expand its existing portfolio.
Analysts expect 2017 full-year revenue to be between $125 million and $130 million.
Stock Influences
- Changes in subscriber and active-user metrics;
- Changes in revenue and profitability; and
- M&A activity.
Risk Factors
- The company may not be able to successfully integrate the assets of if(we). Further, the company may incur unexpected expenses and liabilities as a result of the if(we) merger;
- The company faces substantial competition from other social networks and companies with significantly more resources;
- The company is heavily reliant on advertising revenue and a negative public relations incident could impact the company’s ability to generate advertising revenue in the future; and
- The company relies on several third-parties to distribute and promote its platform including Apple, Google, and Facebook. Any changes to these business relationships could adversely affect the company.
Stock Performance
As of May 16, 2017, shares of Meet closed at $4.95. Investors were generally disappointed by the company’s decrease in net income (as measured by generally accepted accounting principles).
Shares hit a high of $8.11 in August 2016 following the Skout acquisition announced in June, but have mostly traded between $5.00 and $6.00 since then. Still, the stock is up more than 40 percent from one year ago.
Following are selected analyst ratings and price targets:
| Analyst | Firm | Rating | Price Target | Date |
| Darren Aftahi | Roth Capital Partners | Buy | $9.25 | 5/2/2017 |
| Michael Latimore | Northland CM | Outperform | $9.00 | 4/6/2017 |
Summary
Meet has made multiple acquisitions in the past year, and has shown no signs of slowing down. Furthermore, the company is generating positive cash flow, and has a relatively strong balance sheet. Organic user growth has dropped off somewhat recently, but the company has announced several initiatives to improve in this area. If Meet can successfully apply its monetization model to future acquisitions, there is plenty of room for growth. Accordingly, a price target of $9.00, comparable to the analysts cited above, appears justified.
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