Meet Group Inc (NASDAQ: MEET) May Have Bottomed Out


Shares in Meet Group Inc (NASDAQ: MEET), which runs a bouquet of meeting and dating apps, bounced off a double bottomed low Tuesday after the company pre-released selected preliminary financial information for its fourth quarter and full year 2017.

The stock closed December 19 at $ 2.84, up 22.41%, on high volume of 8.64 million shares.

Meet’s apps facilitate chats, friendships, dates, and marriages for its over 2.5 million mobile daily active users. The MeetMe®, Skout®, Tagged®, and Hi5® apps run on iPhone, iPad, and Android in multiple languages.

What’s Ailing Meet Group Inc (NASDAQ: MEET)?

The preliminary numbers for Q4 and full year 2017 dished out by Meet estimate that quarterly revenue would be at or above the high end of its prior outlook of $36.5 million to $38 million; and adjusted EBITDA could be near or above the high end of its prior outlook of $7.5 million to $9.5 million.

For the full year, the company expects revenue to be at or above the high end of its prior outlook of $120.1 million to $121.6 million, and adjusted EBITDA to be near or above the high end of prior guidance of $28.6 million to $30.6 million.

It may be recalled that the Meet stock received a drubbing after the company declared its Q3 numbers in early November. Though revenue of $32.25M (+87.6% year-on-year) missed estimates by $0.08M, and EPS of $ 0.11 bettered consensus by $ 0.01, investors were miffed by the guidance for the fourth quarter and full year, both of which fell short of expectations. Meet also announced a slew of management changes which, perhaps, did not go down very well with investors.

Meanwhile, Meet faced stiff competition from dating industry rival Match Group Inc. (NASDAQ:MTCH) which appeared to be going from strength to strength with its Tinder app. The same day,  Match posted better-than-expected revenue growth in its third quarter and offered upbeat guidance due to Tinder.

Of greater concern, however, was the decline in in Meet’s advertising rates, or CPMs, which led Canaccord analyst Michael Graham to downgrade the stock from Buy to Hold, and lower his price target from $10 per share to $4 per share.

Calling the declining trend in advertising CPMs as “unprecedented,” Geoffrey Cook, Meet CEO and Director, said on the earnings conference call: “We experienced significant CPM decline in 2017… We believe that Facebook Google duopoly is making it difficult for other programmatic platforms to achieve the demand growth needed to counter a dramatic increase in advertising supply on those platforms.”

How Meet Group Inc (NASDAQ: MEET) Is Rising to The Challenge

Meet is going all out to reduce its dependence on advertising and instead move towards more direct user monetization such as through in-app purchasing and subscriptions.

A step in that direction is the company’s October acquisition of Lovoo GmbH, which owned the LOVOO app – the most downloaded dating app in Germany, Switzerland, and Austria combined. Meet’s third strategic acquisition in a year, Lovoo is expected to provide Meet a global footprint and other advantages:

  • Improve scale and profitability
  • Focus away from advertising and towards subscription and in-app purchasing
  • Cost synergies because Lovoo, based in the east German city of Dresden, represents a lower-cost engineering center

Meet is also actively pushing live video monetization through its live video gifting platform. “Early data on our live video product indicates its potential to be the most exciting new monetization feature in our history, and we are continuing to build a tremendous pipeline of live video products across our portfolio of brands,” Cook said in the Q3 earnings statement.

In recognition of the declining advertising CPMs, Meet has also embarked on a cost-cutting drive expected to deliver savings of $10 million in 2018. The company is reducing its marketing spend and cut its US headcount by 18%.

These initiatives are expected to counter the hit from declining advertising revenues and take the company forward on a robust growth trajectory.

At $ 2.95 as this is being written, shares in Meet Group Inc (NASDAQ: MEET) offer low risk but decent profit potential.