The Meet Group [NASDAQ:MEET] is opportunistically reviewing bolt-on acquisitions of dating apps in geographies where it already has traction and in markets that are underserved, CEO Geoff Cook said.
Niche social discovery and dating categories are of particular interest to The Meet Group, Cook said recently on the sidelines of the Roth Capital Partners investor conference in Dana Point, California.
Last month, the New Hope, Pennsylvania-based social media network purchased Seattle-based gay dating app Growlr to enter the same-sex dating market and expand its user base. It paid USD 11.8m for the business and pledged an additional USD 2m in earn-outs if sales targets are met.
Growlr is projected to produce USD 5.3m in revenues this year. Growlr, which competes with Beijing Kunlun Tech-owned [SHE:300418] Grindr, boasts high user engagement among its 20,000 daily users. Whereas Grindr has broad gay appeal, Growlr is marketed toward more rugged, masculine homosexual men.
The Meet Group likes to target businesses that can contribute EBITDA quickly, Cook noted.
Importantly, acquisition targets should have a software application upon which the The Meet Group can layer its live streaming video service, to accelerate monetization, the CEO continued.
In 2017, The Meet Group launched a livestreaming component modeled off of Chinese dating apps like Momo [NASDAQ:MOMO]. The Meet Group’s live video offerings include in-app gifting that produces 30% gross margins, one-to-one chats and “Battles,” a product that debuted in mid-December in which streamers compete with one another in activities like singing and dancing.
The Meet Group in February said its annualized video revenue run rate reached USD 82m. It reported USD 178.6m in total 2018 revenue, a year-over-year increase of 44%. Its adjusted EBITDA was USD 32m.
Last year, The Meet Group did not make any acquisitions as it was busy integrating three deals from 2017, when it purchased Dresden, Germany-based dating app LOVOO for USD 70m in cash, and two San Francisco-based dating apps: Skout and if(we) for USD 60m and USD 54.6m, respectively. LOVOO, the top-rated dating app in Germany, helped drive The Meet Group’s revenue growth in 2018.
Austin Moldow, an analyst at Canaccord Genuity who tracks the online dating market, said both The Meet Group and rival Spark Networks SE [NYSE:LOV] generally spend around 2x revenue on acquisitions while The Match Group [NASDAQ:MTCH], the industry’s dominant player, can pay larger multiples.
The Meet Group’s live streaming offering is a major differentiator, Moldow said, and to hold investors’ interest it would be wise to position itself as more of an entertainment company than a dating company.
MeetMe, which is the company’s namesake dating app, is like “the Walmart of dating apps,” Moldow noted, in that it has meaningful presence in Middle America but it is not well known in US coastal cities.
The acquisition of Growlr should expand The Meet Group’s total addressable market and growth runway, the analyst added.
The company’s share price closed at USD 5.13 on Tuesday, giving it a market capitalization of USD 384m.
by Troy Hooper and Reyhaneh Fathieh in Los Angeles