MeetMe Inc (NASDAQ:MEET): Up On Financials But Should Be Focusing On Users


MeetMe Inc (NASDAQ:MEET) just put out its second quarter earnings, and the company is gaining on heavy volume as we speak. Currently 11% up on the day’s open, MeetMe has a market cap of a little over $342 million, and trades for circa $7 a share.

The company has been one of the most talked about new social networking companies in the tech sector for the past twelve months, and its latest numbers suggest it might be able to live up to the hype. Here’s why.

First, a quick introduction to MeetMe. It’s a social network application (mainly designed for mobile device use – circa 90% of its users are mobile users) that helps people meet others. Users register and can use the app to find new people with similar interests, share information, that sort of thing. What Facebook Inc (NASDAQ:FB) is to friends and family, MeetMe bills itself as being to people you haven’t met you. Facebook is currently valued at a little over $350 billion, so it’s a big billing, but the company is growing fast. Mobile daily active users is 1.22 million, and monthly active users (again, mobile) is 4.84 million – up 14 and 32% respectively on the year-ago periods. That’s not exponential, but it’s not bad either.

What sets MeetMe apart from some other early stage tech companies – especially in the social networking space – is its bottom line. The company is actually generating a net income ($0.09 per share at latest Q2 count). Just as with other companies in this sector, it brings in the vast majority of its revenues from advertising, but also offers some in-app purchases and other promotional type add-ons that bolster its top line. These add-ons have practically no cost to the company, so there’s a bottom line benefit as well.

Institutional interest is pretty high, with around 22% of shares held by institutional and mutual fund owners, and insider owners account for around 17%. Cash isn’t bad – around $26 million at last count – and debt amounts to just a few hundred thousand. It’s also about to pick up a platform called Skout for $55 million, though exactly what impact this will have on its balance sheet remains to be seen.

So what’s the catch? Well, the company has done pretty well to grow to its current size, but this is a tough space to pick up market share. Its Skout acquisition puts it in direct competition with established mobile meeting apps like Tinder, and some of the bigger companies (Facebook, LinkedIn etc.) wouldn’t have to do much to implement the features that make MeetMe (currently) unique into their own platforms. If any of them choose to, MeetMe could quickly get crowded out of the market. There’s also the question of how much ad revenues it can attract. It’s competing with Alphabet Inc (NASDAQ:GOOGL) and Facebook, and while it can offer targeted location based exposure, it cannot do so with the scope that either of the latter two are able to pitch.

There’s also the potential for a buyout, but the company would likely have to boost its user numbers before anything concrete comes along, and this might be difficult. Other companies in the space focused on user acquisition before profitability, and this allowed them to draw a large base much quicker than MeetMe is doing. In other words, yes, it’s profitable now, but if it forsakes expansion by monetizing its current limited base it may become unattractive as an asset. These sort of applications are valued (by potential suitors, at least) by how many users they have, not by the number of cents they make per share. A buyer would be buying users, not a profit tool.

Bottom line is that the company is up on its latest numbers, and might be an interesting company to watch both from a momentum perspective and a long term allocation. It’s not got an easy growth path, however, and this might limit its potential longer term.

We’re going to keep an eye on out for more momentum stocks as earnings season heats up. Subscribe to our free small cap research newsletter below to get our top picks!

Disclosure: We have no position in MEET and have not been compensated for this article.