by Sonya Colberg
The meat cleaver is poised to descend on MeetMe Inc (NASDAQ:MEET), likely chopping those shares very sharply.
MeetMe is a cringe-worthy dating app that recently agreed to fork over $200,000 to settle litigation with the San Francisco city attorney’s office. The office alleged the way MeetMe allowed users to meet new people through their mobile devices violated California law for 13-to-17-year-old users.
While the city accepted MeetMe’s revisions, we think MeetMe promotes a “meat market” mentality and should be closed to anyone under 18.
We’ve found many other reasons to avoid this company.
Below are TheStreetSweeper’s top seven reasons we believe this stock is excruciatingly risky.
MeetMe’s mobile downloads are not growing, according to App Annie data, suggesting the user base is likewise probably not growing. So it’s ridiculous to pay a high multiple for this stock.
(Source: App Annie)
And compared with larger rivals, such as Tinder, MeetMe greatly underperforms, as shown below:
(Source: App Annie)
While MeetMe’s mobile users are increasing slightly, look at the striking 41 percent decline in revenue per user:
(Source: SEC filing)
In light of those disappointing downloads, even while accounting for the increased revenues this past quarter, the market has disproportionally rewarded MeetMe.
MeetMe is expected to do about $52 million in sales this year. That’s about a 17 percent improvement. Yet for the year, MeetMe stock is up about 51 percent.
With the flat download ranking, MeetMe will be hard-pressed to successfully increase its CPM or the price it charges for every 1,000 impressions of its ads – needed to increase revenue.
Indeed, the stock price is out of whack, primarily driven by unwarranted excitement generated by hype.
Meanwhile, serial stock promoters are pushing up MeetMe stock. We’ve seen this happen way too times. Orchestrated – typically bought and paid for hype hops up insignificant techy companies – and the stock flies, briefly generating more baseless excitement and entry of more naïve investors.
Then the stock price falls off the cliff.
Take a look at a sampling of MeetMe hype by a company TheStreetSweeper has written about, RedChip.
This Sept. 16 entry is one of four Redchip hypes just in the last two months:
And MeetMe is clearly proud of its RedChip hype because it flouts touts like this on its website.
The MeetMe-RedChip relationship goes back to 2013, including videos like the one below, complete with what sounds like an applause soundtrack:
A company that depends on hype is not solid enough to justify an investment of anyone’s hard-earned money.
Though trading has been mixed, insiders readily sold stock when the price was lower than today’s price – with CEO Geoffrey Cook hitting sell in the last couple of months at about $1.33-$1.62 – suggesting management may think MeetMe’s value is lower than the current price.
Here’s a more detailed snapshot of insider trading.
(Source: Nasdaq. Click to see full list)
TheStreetSweeper urges would-be investors to take an eye-opening jaunt through the MeetMe website. Here’s a snapshot from MeetMe’s “Owned” section. We’ve obscured people’s features for the sake of privacy.
Note that MeetMe states: “Buy and Sell Your Friends! OWNED!” Below the photograph are the words: “Give Him a Human Gift.”
Predators have victimized dozens of young people nationwide contacted through the networking website, according to the recently settled San Francisco lawsuit.
Various accounts report some MeetMe meetings have resulted in alleged victimization of teens and pre-teens. Here’s one example described by Marlin Page, a child safety speaker:
“One site that is gaining in popularity amongst teens is Meetme.com. Meetme.com formerly known as Myyearbook.com claims to have 90 million members and is described as a “social networking site for teens.” One important features of meetme.com that cause me to pause is that the social network recommends people to connect with based on where the child lives. A recent poll in Florida found 314 sexual predators within a 5-mile radius of a specific zip code. Some Meetme.com members have live webcams, where predators reportedly solicit videos and photos. “It’s terrifying. Parents don’t know how much danger their children are in,” stated Detective Bill Lindsey with the Cyber Crimes Unit at the Pasco Sheriff’s Office.
“Unfortunately teens sometimes feel they are invincible and will offer too much information online, which provides predators with a direct line to them. One such story comes from 18-year-old Alexis Carrascos. At the age of 16, Alexis met her boyfriend through what she thought was a coincidence. Later she learned that he had actually stalked her on Facebook through photos she tagged online with mutual friends.”
Changes May Backfire
Yet, some of the revisions MeetMe has in store to satisfy San Francisco may actually backfire on the company. Users tend to revolt against change, as Yahoo found out when it changed its email awhile back. Now, MeetMe’s changes have the potential to spawn fewer visits and lower ad revenue, as this user suggests:
“Everything that made the site so popular is being removed. Bye-Bye to “Secret Admirer,” and the animated gifs. (“stickers.”) The latter are much like a 24/7 5th grade Valentine Exchange and the choice of thousands of stickers allow(ed) you to find the perfect message to exchange with your new-found friends.
There have been complaints about the site being slow and that may be the rationale for gutting the best features. They should have little trouble from here on out as people will have little reason to visit the site or recommend it to friends. Fewer visits equal reduced ad revenue. My opinion only”
Meanwhile, some analysts have tried to justify their lofty valuations by saying MeetMe is similar to Facebook or LinkedIn. We strongly disagree.
MeetMe may claim it is a social network.
But it’s abundantly clear MeetMe is really a dating site that is suffering a decline in revenue per user and has had to settle its way out of legal trouble.
All considered, MeetMe deserves a valuation more like one of the fleeting dating sites such as Spark Networks (LOV). In fact, LOV has an EV/EBITDA of 7.55 and MeetMe’s value is 10.25, indicating MeetMe is overvalued. As the stock chart below shows, LOV this year has plunged ~17 percent.
(Source: Yahoo Finance)
All in all, TheStreetSweeper expects to see MeetMe’s valuation chopped down to $1.50 per share in the near-term – still a generous valuation.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in MEET and stand to profit on any future declines in the stock price.
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