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Online Dating Stock Research: SNAP Interactive

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The world has gone digital. People shop for clothes online, order pizza online, flag taxis online, pay bills online, share photos online, and yes, even date online.

Indeed, if you’re looking for romance, the most intimate of human experiences, there’s an app for that.

In fact, there are a great many apps for that, ranging from general to oddly specific. You may be familiar with eHarmony or Match.com, but the list doesn’t stop there.

Increasingly, new online dating sites and apps are focusing on specific groups of people.



For millennials on the move, there’s Tinder. A Jewish girl looking for a mensch might turn to JDate. And BlackPeopleMeet.com caters exclusively to people of color.

SNAP Interactive is looking to capitalize on this trend.

The company offers a suite of online and mobile dating apps that aim to bring people together.

Its flagship app, AYI (Are You Interested), has a database of approximately 30 million users. And its latest offering, a female-friendly version of Tinder called the The Grade, is showing promise.

The business model isn’t new, but it’s proven.

So the question is: Is it a love connection for investors?

The Product

SNAP Interactive is building a portfolio of online dating apps, adopting the proven business strategy of industry leader InterActive Corp. (NASDAQ: IACI).

IAC operates the aforementioned Match, Tinder, and BlackPeopleMeet, as well as the senior-focused OurTime, Europe-based Meetic, and Chemistry.com, which aims to establish long-term relationships.

SNAP, has so far established AYI and The Grade, and is looking to parrot IAC’s forays into more niche markets.

Online Dating Market Segments and Products

It will attempt to do this by leveraging the success of AYI, cross-selling its subscribers.

Launched in 2007, AYI is a mature, steady business with some 30 million users. Much of that growth is recent, as its subscriber count has grown by more than 31% over the past year and a half.

AYI Subscriber Count

However, revenue growth has stayed relatively flat over the past year at a little over $3 million.

AYI Quarterly Subscription Revenue

Hence the need to broaden its business by adding more apps, and the introduction of The Grade.

The Grade is SNAP’s answer to IAC’s Tinder — an app that has come to dominate the mobile dating market.

Tinder Market Share

See, what makes Tinder so popular is that it boils the online dating experience down into a simple, carefree game of “swipes.”

Basically, a picture pops up on your phone. If you find that person attractive you swipe the picture right. If not, you swipe it left. And if two people like each other, they’re notified. What happens next is up to them.

It’s brilliant in its simplicity and directness.

There is, however, one small problem: It attracts lechers.

That is, by giving a horde of strangers access to what Mitt Romney might call a “binder full of women,” it’s created a veritable den of harassment. Men regularly approach women on Tinder in an aggressive, overtly sexual, and even threatening manner.

A recent survey of 1,000 mobile daters showed that:

  • 73% of women have received sexually suggestive photos;
  • 77% of women have been asked to send an inappropriate photos; and
  • And 90% of women have received sexually suggestive messages.

When asked if they would prefer a dating experience that expelled low-quality users, 91% of women responded with a “Yes.”

That’s the goal of The Grade, which rates users based on profile quality, message quality, and responsiveness. Those who score high will get more attention, while those who fail are blocked from the app.

SNAP%3A The Grade

SNAP says the goal is to create “a community of high-quality daters who are desirable, articulate, and responsive,” rather than a cat-calling frat house.

The early response has been favorable. The Grade has been downloaded on more than 50,000 phones, and 40% of users return to the app after 30 days, which bodes well for retention.

Matches Created

If The Grade can find even a fraction of the success Tinder has, it will bode well for SNAP, which will have a bigger base to leverage as it rolls out more apps specifically targeted to key demographics.

At least that’s the hope.

Business Operations

As I said, SNAP’s revenue is relatively stagnant — generating about $3 million in each of the past five quarters. Meanwhile, its net loss grew to $1.2 million in the first three months of 2015.

Still, there’s reason to be optimistic.

Recent marketing campaigns have generated approximately $2.50 to $3.00 of revenue for every dollar spent.

SNAP%3A Marketing ReturnSNAP believes its overall revenue yield from advertising and marketing expense exceeds that of public competitors.

Furthermore, peer companies trade at more than 3x Snap’s revenue multiple.

And the market itself is rife with untapped potential.

U.S. online dating was a $2 billion market in 2014, while the global market is estimated at $4 billion. And those figures are sure to grow as more and more people become comfortable with online dating.

Indeed, 60% of Americans now say that online dating is a good way to meet people, compared to 44% in 2005. Yet, in 2013, just 11% of U.S. adults actually used such methods.

Better still, in addition to being more tech-savvy, the Millennial generation is far less eager to get married than its predecessors. The proportion of 18-32 year olds who are married is roughly half what it was 50 years ago.

So, in terms of market dynamics, you have growing mainstream acceptance, a huge untapped market, and favorable demographic trends.

The only real obstacle is competition.

No doubt, IAC has a huge lead over SNAP in terms of branding, resources, and revenue. Again, Tinder is dominating the market right now. And it’s firmly bolstered by a huge slate of other popular offerings such as Match and OkCupid.

More importantly, IAC generated $772.5 million in revenue in its most recent quarter, which puts the company in a league of its own.

Other startups abound as well, including MeetMe Corp. (NYSE: MEET) and Sparks Networks (NYSE: LOV), both of which are bigger than SNAP.

MeetMe’s quarterly revenue exceeds $10 million, and it has a market cap of $77 million. And Spark — proprietor of JDate and ChristianMingle — recently reported quarterly revenue of $13.5 million, as well as a $723,000 profit. It’s valued at $84 million.

Conclusion

SNAP is in an interesting place, no doubt. It’s bolstered by favorable market dynamics and a legitimate business strategy, but it stands little chance of competing with IAC.

The best it could really hope for is a buyout, which it has a fair shot at.

Prior to becoming SNAP’s chief operating officer, Alex Harrington was the CEO of MeetMoi — an interactive dating pioneer on mobile platforms. There, he presided over ten-fold growth in revenue and was instrumental in the company’s eventual sale to Match.com.

If SNAP continues to build its user base, demonstrates increased revenue growth and profitability, and adds a few more high-profile apps, IAC might consider adding it to its already formidable collection.

It wouldn’t be an expensive acquisition, either. SNAP hasn’t performed well over the past year, having shed nearly 40% of its value.

With a recent share price of just $0.17 it’s at the low end of its 52-week range, and carries a market cap of $6.75 million.

Get paid,

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Jason Simpkins

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Jason Simpkins is a seven-year veteran of the financial publishing industry, where he’s served as a reporter, analyst, investment strategist and prognosticator. He’s written more than 1,000 articles pertaining to personal finance and macroeconomics. Simpkins also served as the chief investment analyst for a trading service that focused exclusively on high-flying energy stocks. For more on Jason, check out his editor’s page. 

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