Meet Group Monetization Of Explicit Live Cam Content Threatens App Store Revenues

Summary

• MeetMe now primarily earns take-rate revenues when its users "tip" live cam performers on its platform - the company is, therefore, highly dependent on Apple/Google (together processing ~75% of revenue).
• The company continues to be plagued by a sex offender problem - major recent busts involved MeetMe encounters, and PBS Frontline recently profiled MeetMe in a Child Sex Trafficking Story.
• MEET is finally attracting mainstream media attention - the New York Times mentioned three apps in a recent story about an underage sex sting, two of which were MEET owned.
• Our review of MeetMe Live found numerous public-access streams in which users tipped performers for overt sexual acts and/or drug use, both potential violations of the Apple/Google Store TOS.
• Fundamentally uninvestible: live cam business is non-recurring and too big to be ignored - a slew of bad PR and Tumblr case study creates the high risk that app stores drop MEET.

Introduction

We first wrote about Meet Group (MEET) in August 2016, stating our belief that the company's ad business (at the time 90%+ of revenues) was likely to implode due to company's highly suspect content. Our forecast appears to have played out. While it is hard to pinpoint the extent of the decline in MEET advertising revenues since our story due to the company's aggressive M&A binge, we note that in 3Q17 (one year after our story), MEET disclosed that mobile CPMs at MeetMe and Skout were down more than 40% year over year in a conference call. The stock remains ~40% below levels prior to our first story and advertising revenues continue to rapidly decline - 1Q19 advertising revenue was down almost 40% y/y.

Source: NJ.gov - boxed apps are owned/controlled by MEET

Despite this, MEET has continued to see strong top-line growth. How have overall revenues at MEET continued to climb despite the advertising business falling off a cliff over the past few years (see below)?

Source: Our analysis of public filings

Simple…since our first report, MEET materially restructured its business model and entered the "live stream" business, which, for the unacquainted, involves MEET monetizing user purchases of virtual currencies that are used to "tip" MEET performers who provide live video shows. Essentially, MEET operates and monetizes a marketplace for live cam streams. Today, MEET generates ~75% of total company revenues from the user pay segment, though growth largely driven by "virtual gifts associated with MEET's live video product" (p7).

Here is a quick primer on the "live video" business. MeetMe users can opt into live stream themselves over a webcam (henceforth "Cam Person"). The Cam Person just needs to download the MeetMe app and hit the live stream button which immediately broadcasts a "selfie" live video feed that is available to all MeetMe users via

Analyst’s Disclosure: I am/we are short MEET.

I am/we are short MEET. All information for this article was derived from publicly available information. Investors are encouraged to conduct their own due diligence into these factors. This article represents the opinion of the author as of the date of this article. The information set forth in this article does not constitute a recommendation to buy or sell any security. This article contains certain "forward-looking statements," which may be identified by the use of such words as "believe," "expect," "anticipate," "should," "planned," "estimated," "potential," "outlook," "forecast," "plan" and other similar terms. All are subject to various factors, any or all of which could cause actual events to differ materially from projected events. This article is based upon information reasonably available to the author and obtained from sources the author believes to be reliable; however, such information and sources cannot be guaranteed as to their accuracy or completeness. This article reflects the author's opinion at the time of publication. The author makes no representation as to the accuracy or completeness of the information set forth in this article and undertakes no duty to update its contents. The author may also cover his/her short position at any point in time without providing notice. The author encourages all readers to do their own due diligence.