500 Million Reasons to Like Snap Interactive

| About: Snap Interactive, (STVI)

As someone who’s day-traded stocks regularly for 15 years, I’m not a huge fan of “marrying” my money to a stock, and I usually try not to carry many, if any, positions overnight. Essentially, those are the pillars of trading—like the rules that the friendly TV serial killer Dexter learns repeatedly from his dad: get in and get out quickly, and avoid the risk of waking up to a major market swoon and a bunch of underwater holdings. Occasionally, though, I’ll find a company that sets off a little voice in my head, which says “buy and hold me, buy and hold me, buy and hold me.” Snap Interactive (OTCQB:STVI) is one such company.

The reason I like Snap’s long-term outlook can be summed up in one word: Facebook. Snap is directly leveraging Facebook’s customer base for their dating application, AreYouInterested.com, and those dating app revenues have been growing at a rapid pace. Right now, AreYouInterested.com has 30 million users, and is adding new users at a clip of more than 50,000 a day. Snap’s leading competitor in this space, Match.com, which advertises nationally, only gets 20,000 new users a day. Of course, they don’t have direct access to 500 million potential users like Snap does.

The dating market is only the tip of the iceberg for STVI. Soon, Facebook friends will be able to share their exact whereabouts via a mobile application called WhoIsNear.com, STVI’s entry into the red hot “location-based service” market. Snap recently raised $8.5 million in a private placement to develop and beta-test Whoisnear.com. Unlike many secondary offerings that can suppress the price of a stock for months or longer, Snap’s shares have held firm above the $2 level, despite its recent meteoric rise out of penny land and recent market volatility.

So how big are location-based services going to be? In a bullish Business Week article about Snap, marketing expert Greg Sterling said, “When you’re on a mobile device, whatever is around you becomes very important from a consumer standpoint…I think location is a pervasive layer that we’re going to see almost everywhere on mobile devices.” One of Snap’s main location-based service competitors, Foursquare Labs, started in 2009. They currently have 6 million users, and raised $20 million from investors last year, who valued the company at $120 million!

Invariably there will be ups and downs with Snap shares. It’s a thin float issue that tends to move with exceptional speed both up and down on relatively small volume, so holding Snap shares can put you through some emotional changes. But if you want to talk about a company that’s in the right space (dating and location-based apps), and in the right place, Snap fits that bill.

Can 500 million friends be wrong?

Disclosure: I am long STVI.