COURTLAND BROOKS - June 26 - I don't usually buy dating stocks, but recently I picked up three stocks in the dating industry.I'm a long term investor. Here's why I bought them, and why I plan to hold them for 5+ years.
Match Group - In this business, size matters, and Match Group (see Match Group news) operates at significant scale, along with an International footprint. I expect Tinder (see Tinder news) will continue disrupting the industry worldwide, but it is part of Match Group. What a great catch. Per Clayton Christensen's advice, it's best to acquire disrupting companies that show promise, and keep them separate from the companies they're disrupting. Match (see Match.com news) appears to have done just that. Tinder is based in it's own building in L.A.
I expect the worldwide market for Internet dating to continue growing. However VC money will run out, and margins may remain very thin for a while longer. Mobile will take the lions share. In fact, this is now the mobile dating industry. Desktop dating is old hat. Tinder sits at the top of the league, and Match owns it and is in the driving seat as a consequence.
Match has had consistent leadership, and it's leaders (CEO Mandy Ginsberg, CSO Amarnath Thombre, and President Sharmistha Dubey) all have a work history with i2, a supply chain management software company. This industry seems to be 'quant' driven and they're certainly numbers driven, but I also think they have an appreciation for 'the softer side' as well.
Match have acquired all the free dating services that posed a risk to them - POF, OKCupid, Datehookup, and of course, they managed to incubate Tinder early on. They've bought or are building growth internationally. In China they picked up 20% of top 3 dating service Zhenai. They've made all the right moves and own some of the biggest brands in dating around the world. As Warren Buffet said "Look for companies with great brands and the ability to control prices." That's Match Group. Now they're cashing in on economies of scale, letting these services cross-breed know-how, but generally keeping their management mittens off them.
Medium risk - Bought on 6th April, 2017. It's up 9% (as at 25th June, 2017) since I bought it.
__
Meetme - Are essentially a family run business. I find that generally appealing. Co-founders David Cook (Product Manager) and Catherine Cook (VP Brand) and Geoff Cook (CEO) are siblings. For the last 12 years they've worked with each other, grown and learned together. As Warren Buffet advises "A great manager is as important as a great business."
They acquired Skout and if(we) which operates Tagged and Hi5. These aren't quite dating products. Call them social dating, if you like. Or 'social discovery.' They sit in the middle ground between dating and social networking. Fallow ground for growth IMHO. These products all help people make new friends, whereas Facebook allows people to stay in touch with people they already know. I'm a bit concerned about the cost-base of Skout and Tagged/Hi5 as they're both based in San Francisco, but I trust the team to be able to consolidate resources and cull costs. The real reason I'm bullish about The Meet Group is that they seem to admire and model themselves on Momo. They're doing video, but they're not optimally monetizing video quite yet. I think they will. I doubt it will monetize as well as in Asia, but it should do well for them in the long term.
Momo allows users to contribute to live-stream video creators that they enjoy. This functionality would fit quite nicely within Meetme, Skout, Tagged and Hi5, and allow them to boost ARPU. There's much product development work to be done, but the writing is on the wall. Momo has shown a clear path to monetization, and Meetme should be able to copycat their way to profits by modeling their success. Indeed, they predicted $150 million revenues and 30% margins. This seems uncharacteristic of Geoff, the CEO, as he's not one to boast or lay out such predictions. Perhaps they can deliver on this. That will certainly boost The Meet Group's stock, and as a consequence I'd expect it to get discovered, and then land on the institutional investors hotlist, providing a further boost. So I'm all-in on the newly named The Meet Group. Risky, but nice.
High risk - Bought on 16th June, 2017. It's up 5% (as at 25th June, 2017), since I bought it.
__
Spark Networks / Affinitas - Spark Networks has been bumbling along for years underperforming the market and losing money each quarter. They saw gold in Christian dating, they bet on it, over-invested, and lost. While their new church outreach strategy may be good, it's just too slow. The product needs a revamp. But they're sitting on an absolute hallmark niche dating service Jdate, and were wise enough to acquire the Tinder of Jewish dating, Jswipe. The transition to mobile has left Spark reeling, and they need to correct their cost base further, IMHO.
Meanwhile, Affinitas has done ok in Europe, and turned it's sights towards the USA with its Elite Singles product, which directly competes with eHarmony. Given that eHarmony only had competition with Perfect Match and Chemistry in the past, both of which are dead or laggard products, Elite Singles seems to be finding some joy in the USA at eHarmony's expense. If eHarmony was public, I would have invested in them years ago. But they pulled the plug on their plans to go public. Affinitas will now find a path to raising money by merging with Spark.
That bodes well for Affinitas. They'll gut Spark's costs by moving the Spark HQ to Berlin, which has a far lower cost base and wage rate. Spark Networks probably hit rock bottom stock price wise. As Warren Buffet said "Never overpay for anything." Affinitas has the most to gain by buying them. They'll benefit from economies of scale and combining know-how. They'll be able to raise more money, more easily, through their new public vehicle, which will be called Spark SE after they merge with Affinitas. More cause for concern for eHarmony? We'll see. But for now, I've seen evidence from Affinitas of an open-mindedness to new ideas, and international growth, and keeping costs under control. Just the medicine for Spark.
High risk - Bought on 16th June, 2017. It's down 4% (as at 25th June, 2017), since I bought it.
__
In general, the handful of publicly listed Internet dating companies that exist around the world underperform their respective country stock market indexes. (These analyses appear in my Internet Dating Conference keynote presentations.) The recent exceptions are Momo, Match and The Meet Group. Spark has consistently underperformed over the years and seems to have bottomed out now.
I seriously thought about buying Momo, but decided against it. I still have my reservations. I think this stock has been 'discovered' already. It was recently recommended as a Motley Fool 'Rule-breaker.' It's inflated as a consequence, and I'm not sure Momo can keep up such a heady growth rate. Also, I don't have a head for Chinese stocks. I suspect new and existing competitors will copy the core video-monetizing functionality, and undermine their growth rate over the long term so I don't want to pay a premium for growth that they probably won't be able to maintain. Meetme admires and aspire to be Momo, and I think that's a better, albeit highly risky bet, right now. Meetme has not yet been 'discovered' so I'm shooting for the riskier bet with Meetme.
__
I do not make any recommendations in this post. I'm merely expressing my opinion, and putting my money where my mouth is. I hope these stocks will, in combination, beat my hurdle rate of 8% per annum for the next 5 years. I'll report back in 6 months to update this post on their performance.
In the mean time, you can see one-pager summaries on publicly-held Internet dating companies on Online Personals Watch here.
Comments