Mergers and Acquisitions activity is heating up in the social networking space and Quepasa (QPSA) could be the next to be acquired.
Disclosure: The author holds shares of QPSA
If you want to know what Quepasa is all about, just go to its website. Quepasa.com is Latin America's answer to Facebook. It has over 20M members and has been growing its membership by more than 300%. The company posted record Q3 results last week and reported that Quepasa.com now has the fastest growth rate among social networks in Brazil and the second fastest worldwide.
According to Alexa.com, Quepasa is especially popular with people between the ages of 45 and 64 with a graduate school education. These are top earners at the peak of their earning power. This is a contrast to Facebook, which is more popular among educated younger people (under 45), many not college educated (partly due to age). This contrast should make Quepasa even more attractive to Facebook or competitors who are looking to establish a defensible position against Facebook.
Recently, large media companies have been actively acquiring social networks like Quepasa, as the world moves to the Internet, impacting TV ratings. Just last week, Hyves, the Netherlands' equivalent of Facebook, was acquired. The terms were not disclosed, but Hyves had roughly 10M accounts, half as many as Quepasa. More telling, Hyves' traffic ranking had been plummetting for at least 2 years, while Quepasa's has been on a tear. If a small, shrinking site was viewed as an attractive acquisition, imagine the attractiveness of a large fast-growing site.
Back in August, Telefonica (NYSE:TEF) paid $100M for Quepasa's most direct competitor, Tuenti. Considering that Tuenti only had 7M members (versus 23M for Quepasa), simple math says that Quepasa's valuation should be $300M, about three times its current market cap.
More recently, TechCrunch Europe announced that Poland ’s "Facebook", Nasza Klasa, is reportedly up for sale for €130M (US$180M). At last count, Nasza Klasa had 21M users and 13.5M unique monthly visits. These numbers are comparable to Quepasa's, suggesting that QPSA should "only" be 50% higher than it is. However, there's one glaring difference between Nasza and Quepasa -- Nasza has been shrinking. Meanwhile, Quepasa is still growing in excess of 300% per year and is now larger than Nasza.
The difference in valuation for a fast-growing company versus a shrinking one varies, but is always significant. For example, when Salesforce.com (NYSE:CRM) went public in 2004, it traded for 12x revenues, which was four times greater than Siebel Systems (SEBL) (Salesforce's larger, but shrinking competitor), even though Siebel held a leadership premium, as the larger vendor in the (CRM) market. When Google (NASDAQ:GOOG) went public (also in 2004), it had roughly the same revenue, growth-rate, and valuation as Yahoo (NASDAQ:YHOO). However, now that Yahoo is shrinking, Google's valuation is nine times greater than Yahoo's.
The implications for Quepasa are obvious. Just looking at the Salesforce.com example, if Nasza Klasa can command $180M, Quepasa could attract four times that amount. That's $720M or $39 per share. That may seem outlandish, but math is math. Let's look at it another way. At present, Quepasa has 23M users and trades at less than $6 per user. Meanwhile, many social networks are attracting valuations of $20-50 per-user. Based on this alone, one could argue that Quepasa is worth $450M-$1.1B. Not surprisingly, the middle of this range is close to $720M. Again, $39 per share.
Looking at the company's growth trajectory, Quepasa just announced that it added a record 2.1M new members in October. This equates to 10% growth month-over-month and an incredible 325% growth year-over-year. Even more astounding, QPSA's annual growth rate has actually been rising for three straight months. The company is now on track to have well over 50M users by the end of 2011. You can do market-cap-per-user math from there.
To be clear, I'm not calling for QPSA to hit $39, but the potential is there. Even the most modest calculations value the shares above $10 and that's a great start. Given the valuation metrics we've seen for Nasza Klasa and Tuenti, it's reasonable to assume that Quepasa should fetch at least $15 per user. That equates to $342M or $18 per diluted share, which again, is nearly triple its current price.
You can find more research on Quepasa by checking out fellow SeekingAlpha contributor, Ian Cassel here.