Meet Group Inc (MEET)

[bhsl]

ALL DATING / CHAT APPS ARE NOT CREATED EQUAL :)

In this analysis, I will take a look at Ok Cupid (OKC), Plenty of Fish (POF), Meet Me (MEET) and Skout.


I collected SALE price of POF and OKC when each company was acquired by IAC, which also owns Match, Tinder, and many more dating and non-dating sites (College Student focused holdings company [MTCH]). I researched OKC's and POF's average Daily Active Users (DAUs) at time of sale to come up with valuation in terms of DAUs.








“PAST TRANSACTIONS”
The Sale of OKC was in 2011, while the sale of POF was in 2015. We can see that over the four years elapsed between sales, a premium over DAUs was paid, and more recent premiums are higher per DAUs So, if we take the Sale Price of OKC or POF and divide by the number of DAUs, we get $14.29 and $159 paid respectively. The average amount paid per DAU increased while the stats of OKC and POF. What I mean by this, is that POF has better traffic, and engagement compared to OKC. But Male to Female ratio was similar. Note however, that OKC and POF online statistics are fairly good in terms of user engagement, male to female ratio, and overall site traffic comparison world-wide and in USA (see table). POF’s user engagement and time spent on the site are also better when compared against OKC, so the premium over DAUs when compared to OKC is expected. However, the premium was too much and investors punished MTCH stock when the deal closed shortly after going public making MTCH lose almost 40% of its PPS in the coming months.


“MEET IS GOING TO BE AQUIRED”
Now, if we compare these metrics against the common "chatter" that is saying that MEET will "get acquired" by a "company" things start to look a little weird. MEET currently commands a Market Cap of $418M and a Price Per Share (PPS) of around $7.93 as of August 11, 2016. If we factor DAUs reported in the last earning announcement of 1.22 Million, this would signify a Price Per DAU of $339 per user! You're probably saying well they just acquired Skout right? So they should require a premium over POF’s $159 paid per DAU? Let's analyze this a bit…

The acquisition of Skout will increase the DAUs to a total of 2.1 M according to MEET's presentation. The higher DAUs for the new MEET + SKOUT is still well below the 3.5M or 3.6M of OKC or POF respectively. More precisely, this represents 40% less active users for MEET + SKOUT when compared to OKC or POF at time of sale. We'll come back to this "40% less active users" number shortly.

Let's look at MEET's and Skout's user engagement metrics and visitors. According from information from Alexa and siteanalytics, MEET and SKOUT have a score of 7,244 and 16,901 respectively. High score numbers aren't good. For example, Google is scored as 1. The lower the better. In the table we can see that OKC and POF have a respectable 708 and 682 respectively. Along with 3.43M Unique visitors for OKC and 4.19M for POF. When we compare this data against MEET and SKOUT things don't look so good. MEET and SKOUT aren't even close to 1M Unique Visitors using the same benchmarks used for OKC and POF. Alexa also scores MEET and SKOUT substantially worse than OKC and POF (7,244 for MEET and 16,901 for SKOUT). This doesn't reinforce the idea that OKC, POF, MEET and SKOUT are in the same class.
Let's now take a look at user engagement and demographics. Things get a little more interesting here. We can see than on average OKC and POF users view more pages and spend more time on each service, Even with Skout's "better" numbers, their smaller footprint will not improve MEET by much. So why would advertisers pay premiums to MEET and SKOUT when they can reach a broader/ more engaged audience in OKC and POF?

Also let's look at the male / female ratio of all these services. We can see that MEET's and Skout's look awfully familiar to Ashleymadison.com's ratio. As you recall, this website was hacked and showed that almost every female in that website was a bot or fake user. This would be devastating to MEET's price. I'm not saying its users are fake, but I have taken a stroll in all apps and you can clearly tell a difference between the users in OKC and POF when compared to MEET. Something to consider if you ask me.

VALUATION for "SALE"
So let's have a hypothetical sale of MEET + SKOUT using the same $159 per DAU used for POF. This would result in a market cap of around $335M and PPS of $6.41 (-20% than current prices). BUT does MEET warrant this premium that POF commands with respectable Alexa score, unique visitors, user engagement, and DAUs? Highly unlikely. When Facebook acquired What's app, they paid around $42 per user. Let's say however, that MEET commands 70% of the premium paid for POF. This would result in a $112 price per DAU, a share price of $4.49 (-56% Decrease in PPS), and $234 in market cap. But why would anybody be interested in acquiring MEET when their PPS is way overvalued?

For matter of discussion, let's say someone wants to offer a premium of 25% compared to the current stock price and offer to buy out MEET at $10 per share. This would mean the buyer would place a value of $250 per DAU! It's an astronomical value for a user that spends very little time in the website and is not even engaged. Make no mistake, MEET is NOT an Instagram, SnapChat, Twitter, or Facebook. Tinder, Match, OKC, POF, BUMBLE, HAPPN, LINE, WHATSAPP, WECHAT; and the many many other apps will not sit idle waiting for MEET to increase their market share.

MEET COMPETITORS
To compete MEET will need to increase marketing spend. MEET will more than likely have $38M in cash next quarter and after they pay Skout, will be left with $9.5M in Cash or Cash equivalents. This will decrease the liquidity of the company. And since they want to continue to increase market share and new users they will need to find ways to raise money through Debt or a secondary public offering, which will dilute the stock.


SUMMARY:
MEET will decrease in PPS when the acquisition of SKOUT finalizes, due to the huge decrease in Cash Reserves AND because Skout management can sell their 5.37 Million shares at that time too.
MEET will likely have a secondary stock offering at current high prices to raise money for the acquisition of Skout and remain liquid and to increase marketing spend.
MEET will not be an attractive takeover target, like it has not been the past decade, due to the inflated market cap and low user engagement, and poor financials that will result from the acquisition.
MEET will have to increase marketing spend to increase new users, which will be hard when competing against dating apps and chat apps.
MEET is NOT a good Long Term Stock, major correction coming. Possible dilution of shares if secondary offering takes place.
MEET fair value of DAUs in the $4-5 range.