MeetMe: In Your Face!

| About: MeetMe, Inc. (MEET)

Summary

As many of you know I have been covering MeetMe for some time.

Although I was about two to three quarters early on the call, my thesis that the company would grow to profitability and drive the stock significantly higher came to pass.

After a more than triple bagger, should you take profit?

Q2 earnings are out and I discuss the trajectory of the company's ongoing growth story.

As many of you know I have been covering MeetMe (NASDAQ:MEET) for some time. And to the shorts, well, "in your face," as they say on the field/court when an amazing play occurs. Well although I was early on MeetMe, I pounded the table on this one at the $2 mark. I have previously discussed in depth how this member of the fast-growing social media sector has been a trader's dream stock, but an investing nightmare at the time because every time it rose, it gave back the gains. But then I also said that it would be a strong 2016 play. To close out 2015, the stock had sustained momentum above $2, even surpassing the $2.50 level and breaching $3.00. Fast forward to August 2016, and we are above $7. In your face indeed.

Before this break out, I talked about the name as a case of a working company but a broken stock. It was a long struggle, but the name is finally receiving the attention it deserved. The name may be a bit ahead of itself, but the revenues are up, the company is profitable and traffic continues to rise. Month-to-month the name seems to improve. Now lets not kid ourselves, the social media sector is volatile and companies rely exclusively on user traffic to primarily generate revenue through sales or advertising. This model can be a bit difficult to operate under. But because of the user growth, I held firm that revenues would magnify higher and the company would turn a profit. So many disagreed, so many called it a prime short candidate. Maybe at the well above $7 level, I might agree. The stock is a bit ahead of itself, but growth remains and more importantly the company has proven my thesis correct. Many believed this name would never make a dime. Well, hindsight is 20-20, but every quarter, we learn that the company is growing its base. Now, the point of this column is not to gloat, but to highlight the fact that when you have a thesis you believe to be solid, so long as the evidence remains on your side, do not abandon ship due to pressure.

All that said I think my most controversial prediction was the MeetMe would see sustained profits in 2016. I predicted this because, the name continues to be on an amazing growth trajectory on the back of a more user-friendly app, a modernized chat system and recent upgrades. More users will continue to drive revenues. With MeetMe's just reported Q2, we see the company really hit another homerun. Clearly, my thesis that revenues would grow on the back of more users leading to sustained profits has been correct. Earnings are at the point where I think they will be consistently positive. This is the seventh quarter in a row the company has delivered a beat on revenues. And the earnings were also huge beat. Earnings were $0.09 and beat consensus by $0.04. It beat my expectations of $0.06 by $0.03. That is impressive. But what drove these earnings?

This revenue number is staggering. It's also higher than I expected. I was looking for revenue of $15.5 million. But they came in at $16.4 million, up a strong 48% year-over-year. Further, the company beat consensus estimates by $1.13 million. Expenses were kept in check, which fed the bottom line. But what is feeding revenues? Well I still think the continued story here is that MeetMe is doing a great job growing mobile. Mobile is the future, and well, the future is now.

Mobile revenue was up 82% from Q2 2015, coming in at $15.1 million. This is 92% of total revenue, the highest ever for the company. On a year-over-year basis, mobile daily users increased almost 15%, and mobile monthly users grew nearly 32% year-over-year. Since the company revamped its mobile ad strategy, revenue is up 15%. That's strong. Margins were a very strong 37%, and rose year-over-year, from the 26% seen last year. They are also up from the 28% last quarter.

Bottom line, we have a winner. Take some profit here. The growth is there, but don't be greedy. Let it run, but take some profit. I'm still bullish here, but not a pig. Bulls make money, bears make money….you know the saying. Guidance for 2016 revenues are $63 million to $66 million. The EBITDA outlook is for $23 million to $26 million. On top of that, the company will be free cash flow positive. The company is also purchasing Skout which should help longer-term profitability. I like what I am seeing here.

Note from the author: Christopher F. Davis has been a leading contributor with Seeking Alpha since early 2012. If you like his material and want to see more, scroll to the top of the article and hit "follow." He also writes a lot of "breaking" articles that are time sensitive. If you would like to be among the first to be updated, be sure to check the box "Real-time alerts on this author" under "Follow."

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.