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Time For MeetMe To Meet Expectations

|Includes:FB, MeetMe, Inc. (MEET), ZNGA

Facebook (NASDAQ: FB) dominates the social networking market. However, that does not mean that no other players can survive the heat. Some have tried and still are hanging in there, only because they have a niche target for their social networking platforms. For instance, Zynga (NASDAQ: ZNGA) is barely surviving, but it could have been worse if its target market happened to be the same as that of Facebook.

That said, there are even more niche companies in the social networking market. MeetMe Inc. (NYSEMKT: MEET) may sound like a new company in this market, it is older than Facebook and Zynga. MeetMe was founded in 1997, and currently has about 90 million users. It owns and operates social discovery networking platforms in the United States. The company's business is to encourage people to meet through social games and applications, which it monetizes through advertising and virtual currency.

Based on the expansive growth in social networking, MeetMe, through its website, should be one of the largest companies in the social networking market. The problem is (just as Facebook and Zynga found out) that it is not easy to make money out of social networks. People who join social networks do so to socialize and not necessarily to shop or do business.

Nonetheless, that has changed over the last one to two years with various companies using social media platforms to promote their products. Social media marketing has become a core department in almost every company out there, which means the opportunity in terms of monetization in the social networking market is becoming a reality. This is perhaps the reason why MeetMe should be looking to deliver to on its expectations.

I cannot compare the $69 million market cap company with the likes of Facebook and Zynga, but surely, MeetMe deserves a better value than its current valuation. The company is the public market leader for social discovery, which also underpins its leadership in mobile monetization infrastructure.

In the most recent quarter ended September 30, the company's mobile revenue grew by 42 percent from the same period last year. Mobile revenue represented 35 percent of overall revenue for MeetMe. This is one of the highest percentage representations in the industry, which means MeetMe is up there with the best when it comes to mobile monetization.

Doing well in mobile is critical for MeetMe because the paradigm shift from web-based browsing to apps is shifting the focus to usage of mobile devices. Therefore, as more and more people make the shift, MeetMe will be ready to pounce and capitalize.

Now, with a gross margin of 100 percent, all that MeetMe needs to do is to control its operating expenses and it will be set to deliver well to expectations. The company currently trades at 1.79x in price to sales ratio, which is below the industry average of 2.39x. Its price to book value is pegged at 0.86, meaning it is priced at a discount when compared to its write down value.

The bottom line is that MeetMe is undervalued. Nonetheless, it seems as though the time has come for the company to meet its expectations as the shift to mobile continues to grow.

Stocks: MEET, FB, ZNGA