The Meet Group: This Slap In The Face Is A Gift

| About: The Meet (MEET)

Summary

MEET has been rebranded but I love trading it around the $5 mark.

I discuss the volatility in the name.

Q1 earnings were a gift even if it feels like a slap in the face.

I have been covering MeetMe, which has rebranded itself as "the Meet Group" (NASDAQ:MEET), for quite some time. You likely remember that I bought in at the $2 mark, and made it my top pick back in 2016. In the summer of 2016, the stock surpassed $7, at which point I recommended that investors should take profits. When the stock fell back under $5, I called for another buy. Then, after hitting a homerun, the stock exploded to $6 this week as the company delivered on all metrics I was looking for in its Q4. The stock then tanked following an underwritten public offering of 8,000,000 shares of its common stock at a public offering price of $5.00 per share. Just $5.00 per share. That sent shares reeling and I said to buy, and shares rallied to over $6 again. Over the last week, shares have now lost 20% of their value. Why? It stems from performance.

Here is the deal. MEET 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, but will user growth continue? Well the data suggests it will, but there were some issues which spooked the Street in Q1. The revenue number came in at $20.1 million, up a strong 51% year over year (please keep in mind how the company reports revenues as outlined in my prior work). This was a tiny beat but essentially in line. The trend to mobile continues and this is what I was looking for strong growth in. Mobile revenue was up 61% from Q1 2016, coming in at $18.8 million. This represents 94% of MeetMe's total revenue, nearly the highest ever for the company. On a year-over-year basis, mobile daily users continue to increase.

What about on the bottom line? Well here the company delivered once in line with expectations. I remember covering this name long before there were any profits. I remember some said there would never, ever be profits. The company consistently makes money now. And now the company is delivering another quarter of record EBITDA for Q1. Adjusted EBITDA came in at $4.8 million, up 30% from last year. Margins were strong at 24%. Overall earnings per share hit $0.07 and met analyst expectations. Commenting on the quarter, Geoff Cook, CEO stated:

"In the first quarter, we continued to effectively execute our strategy to innovate, acquire, and build the largest mobile portfolio for meeting new people. On April 3, we successfully closed on the acquisition of if(we), a social and mobile technology company based in San Francisco with two leading mobile brands for meeting and chatting with new people: Tagged and Hi5. While only one month into the integration, we have already consolidated the Skout team into the if(we) office, putting all our West Coast employees under one roof. The if(we) team today is primarily focused on two key priorities: advertising monetization and video. I expect great things from the West Coast team and rapid progress toward increasing Tagged ARPU and launching live-streaming video. Additionally, we made strong progress toward rolling out livestreaming video inside of the MeetMe app. Currently, three out of four MeetMe users have access to the Live feature within the MeetMe app. Of users with access, we are seeing 13-15% watching live video every day…"

Bottom line here is that MEET continues to be a winner. This was an in line quarter with net income that was still strong even if not explosive growth. The prolonged selloff is well over done and frankly this is an unfortunate short-term slap to the face. No one holding a stock wants to see all of their gains given back in less than a week or two. The stock action on the news really surprised me. I like the name under $5. It is a buy right here. The growth is there. MEET now has more than ten million monthly active users and one of the largest mobile user bases of Millennials. With all of the attention and the recent headlines being dominated by the Snapchat IPO and of course its larger rivals, MEET has demonstrated tremendous growth and is delivering profits.

Note from the author: Quad 7 Capital has been a leading contributor with Seeking Alpha since early 2012. If you like the material and want to see more, scroll to the top of the article and hit "follow." Quad 7 Capital also writes a lot of "breaking" articles, which are time sensitive, actionable investing ideas. If you would like to be among the first to be updated, be sure to check the box to "Get email alerts" under "Follow."

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in MEET over 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.

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