Spark Network: A Perfect Match for Valentine's Day

A while back, I recommended Spark Network Inc (LOV) at about $6.70. The stock went higher after I recommended it, then it went lower and has stayed low for a while now. Let’s take a look at the two year chart.

This company operates niche online dating sites such as JDate (a dating site tailored specifically to the Jewish community), Black Singles Connection (a dating website for African Americans), and a newly launched website for the Christian community called Relationships.com.

Spark earned over $68 million in revenue in 2006. They earned $.07 per share for the quarter ending on September 30, 2007 and will report their results for the fourth quarter of 2007 today, Valentine's Day.

If you would like to hear Spark discuss their numbers, click here.

The couple of analysts that cover the stock expect them to earn $.10 a share for the fourth quarter of 2007. Do you?

What we have here is an online dating site this has a niche focus. Some of their competitors include www.eharmony.com and www.match.com.

The pricing power that Spark has is based on the fact that they provide great customer service to niche communities for a reasonable price.

For example, www.jdate.com is focused on catering to the Jewish community. Spark charges just under $40 a month to make love connections. They have done such a good job, and provide such a user friendly website, that there are many members who subscribe who aren’t even Jewish!

There will always be a market for love. Once upon a time, you would get involved with people in your own community and stay with that person for the rest of your life, whether you were miserable in the relationship or not.

Nowadays, you can meet any person, from anywhere in the world, based on your common interests. I think that kind of business is sustainable.

The key question…

Online dating is here to stay. The key question is which company is the best love broker out there? Which company is the best at execution?

There are, of course, free websites out there, such as Facebook and MySpace (NWS), where people can go to find a match.

These types of competitors will put a ceiling on the amount of money that companies like Spark can charge. In other words, would a person pay $40 a month for a service to help them find a date when they could simply go onto a free site to find a date?

Your knee jerk answer may be no, but it all depends on if what they are getting for that $40 is better than what they could get on the free sites.

I believe that the niche way to dating is the right way, and the Match.coms of the world, by focusing on the masses, are doing it the wrong way, because you could just go to one of the free aforementioned websites to hook up with one of the masses.

It is easier to maintain your pricing power when you have a niche service, as long as they don’t start giving away a niche dating website as well. That could spell the end of these abnormal profits that companies like Spark have been enjoying for a while now.

The online dating wars are heating up folks. Let the games begin.

Do you think that Spark will meet, beat, or exceed the $.10 a share that Wall Street expects them to earn? Also, listen to the conference call to get a feel for this company and industry - it could put money in your pocket.

Disclosure: none