Quepasa: The Only Publicly Traded Social Network (Part 1)

| About: MeetMe, Inc. (MEET)

Quepasa Corp (QPSA.OB): Quepasa Corp owns Quepasa.com which is a best of Facebook + best of Myspace + best of Zynga social networking site for Latinos. QPSA is the only social networking pure play that is publicly traded. Quepasa.com has been gaining traffic/membership quickly, adding 10 million members over the last 12 months and the growth is building momentum. Quepasa.com currently has 12 million members, adding 1.0-1.5 million members per month, and expects to have 23-25 million members by YE 2010. The company is currently rolling out Quepasa DSM (Distributed Social Media), Social Applications, Video/Banner Advertising, Virtual Currency/Gifts, and Premium content/Subscriptions to monetize this growing membership.

Revenue is expected to ramp up throughout 2010 with operations expected to reach cash flow positive in H2 2010. Looking at past M&A activity, other social networking sites have been acquired for anywhere between $15 – 40 per member. 20 million members (I expect QPSA to reach this in Q4 2010) is a key industry threshold where M&A activity starts to occur. The company currently has 23.5 million fully diluted shares outstanding. I do expect the company to do an equity raise at some point (probably in Q3/Q4 2010) so I’m going to add 20% more shares for a potential equity offering, so let’s say the company ends the year with 28.2 million shares outstanding FD. At 25 million members (x) $15 per member = $375 million potential valuation or ($375m/ 28.2m FD Shares) $13.30 share price potential within 12 months. QPSA is really the only social networking pure play that is public, so I expect the stock to do very well once it gets up listed to a major exchange (by year end).

My meeting with Quepasa Corp really went well. QPSA is a turnaround story as this new management team has really accomplished a lot over the last 18 months. During Q2-Q3 2010 they plan to roll out social games (ie social games = Farmville, mafia wars, poker etc), apps, and virtual goods to monetize the membership base. Their DSM advertising platform was rolled out late Q4 2009 and is expected to contribute enough in 2010 to cover the burn rate (~$350,000/month). The DSM advertising was so successful in their pilot launch they got 3-4 times more impressions for the advertiser than what the client paid for. They are now working on a more efficient back end system for DSM advertising so it can be more scalable by Q4 2010. Huge potential. As the CFO stated, if we only get $1 per member per year the business is hugely profitable (avg is $1-3 per member for successful social games). They have signed agreements recently with hi-media a micro payment provider so individuals can charge things to their cell phone bills and other means since as you know many Spanish speaking countries don't use credit cards like we do here in the US.

The management team is very good. They have a few guys that lead development for Match.com, Myspace, and others, that are now working full time on Quepasa.com. The CEO himself doesn’t take a cash salary as he prefers to take his compensation in the form of stock options. I asked him when he expects to start paying himself, his words, "I'll make money on the stock."

The company expects to be cash flow positive in Q3, net income positive by year end. If in 12-18 months they are successful in just getting $1 per member per year, the stock will be many multiples higher than today’s price. The leverage in their business is phenomenal.

With Facebook, Twitter, and possibly Zynga going public in 2011, I think those IPOs will bring yet another catalyst to QPSA. Now no one knows about QPSA, but I expect that to change.

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Disclosure: Long QPSA