Quepasa Is Young, Not Overvalued: Pullback Presents Buy Opportunity

| About: MeetMe, Inc. (MEET)

Yesterday, Microcap Speculator, a fellow Seeking Alpha contributor, made some great and valid points in comparing Quepasa (QPSA.OB) to Facebook (see here). In response, QPSA's share fell as much as 7.7% before closing the day with a 6% loss.

For the record, I happen to agree with his points, the main one being that Quepasa is no Facebook. But that point has little to do with what QPSA's shares should be worth today. Frankly, I'm concerned with ANY comparisons between Quepasa and Facebook, positive or negative.

On one hand, QPSA is too immature to compare to Facebook in any way, shape, or form. On the other hand, QPSA's traffic rankings are rising like wildfire, while comparable companies (which have been acquired for higher premiums) have been seen their traffic stats plummet.

If you check out my Seeking Alpha article (here) and then check out these traffic ranking charts (here), you'll see exactly what I'm talking about.

Over the past 12 months, QPSA's traffic rank has been halving every six months or so. If this pace continues, it will be a Top 400 site by this time next year (alongside the likes of Fox Sports, Bloomberg, the L.A. Times, and Fedex). Six more months would make it a Top 200 site, on par with PartyGaming.

At last check, PartyGaming had a market cap of nearly $2B. Is 18 months too long to wait for a ten bagger?

To be clear, I'm not proclaiming that QPSA will be $100 in 18 months...but based on its rate of growth, the potential IS there. Further, QPSA's traffic has been rising at this pace for well over a year. That's a very solid trend, underpinned by a management team that has a clear vision for how to keep that trend intact.

Nobody can argue that Quepasa has relatively low per-visitor usage statistics TODAY, but that's because it's a relatively young company. As the company adds new features to its site, its traffic ranking continues to rise quickly...and that is what investors need to focus on.

If you simply look at where the company is at this point in time, you will fall into the trap of calling the stock overvalued. In fact, you would conclude the same thing about Salesforce (NYSE:CRM) or Netflix (NASDAQ:NFLX) (or Facebook) a few years ago. As an investor, you can't just look at the present in a vacuum. You have to look at the underlying trend...and for Quepasa, that trend is rapidly moving up and to the right.

Look into management's game plan and you'll quickly realize why there's a very good chance that the company's traffic ranking will keep rising...and in the internet game, it's not about users or visits-per-user. It's the combination, which is captured neatly in total traffic, as measured by companies like Alexa (FYI, I'm not just relying on Alexa's data -- I've obtained more professional data which I can't post, due to copyright issues). Suffice it to say that each of the two data sets confirm the other.

Could QPSA fail to live up to expectations? Sure. But for a $10 bet, you're probably risking a 50% loss against a 1000% of potential return. Considering that the company continues to add more and more new users every month, you have to think that the stock should reflect a much higher risk/reward ratio. Personally, I can live with a $5 loss, but I wouldn't want to look back 12 months from now and kick myself for missing a $10, $50, or possibly a $100 ride.

And of course it sounds like hype to throw numbers like that around, but they are backed by the reality of QPSA's growth rate, not the promise of becoming the next Facebook. For proof of this, you need look no further than Baidu. The "Chinese Google" is unlikely to ever become Google, but that didn't stop it from earning a $30B+ market cap or becoming a 10-bagger over the past 2-years.

The comparison is not far-fetched. Baidu targets the 300M Chinese internet users (as of 2008), while QPSA targets the world's 124M Spanish-speaking Internet users. Running the math, if Baidu can justify being worth a sixth of Google (NASDAQ:GOOG), Quepasa could grow to justify being worth a fifteenth of Facebook, which equals $3.3B -- even higher than the $2B number I discussed above.

And if all else fails, you can bet that Facebook will consider taking QPSA out. Given Facebook's $90 per user valuation, buying QPSA would be wildly accretive.

Is short, all an investor has to do is ask him or herself..."Is it worth $10 to make $100?".

If you haven't guessed by now, a prudent portion of my investment dollars say "yes".

Disclosure: I am long QPSA.OB.