Here's Why MeetMe Has 64% Upside

MeetMe Inc MEET has been growing its user base, and also improving its monetization of users, Loop Capital Markets’ Blake Harper said in a report. He initiating coverage of MeetMe with a Buy rating and a price target of $9, commenting that the company should eventually be able to achieve EBITDA margins of more than 40 percent.

User Base Growth

MeetMe’s mobile DAUs surpassed 1.22 million in Q2, growing 15 percent y/y in the quarter. Mobile MAUs rose 32 percent y/y to 4.8 million.

“User growth has been driven by a steady pace of product upgrades and enhancements that should continue under the direction of the CEO founder,” analyst Harper wrote. He added that the favorable trends included the overall growth of mobile users, increasing use of mobile messaging rather than email), people staying single for longer and “being more transient.”

Related Link: MeetMe Shares Fall 5.44% After Hours To $4.86.

Monetization Growth

MeetMe has been able to significantly improve monetization with better ad targeting and better pricing visibility. The company recorded a 38 percent y/y increase in its mobile ARPU to $3.11. This is substantially below the figure of $13.74 that Facebook Inc FB recorded in North America.

“While we don’t expect MeetMe to monetize at the same level as Facebook, we do believe there is significant room for monetization to increase,” Harper pointed out.

Other Positives
The acquisition of Skout, which is expected to close in Q3, should “provide scale, cross-selling and cross-functional capabilities,” the analyst mentioned. He expressed optimism regarding MeetMe being able to generate organic revenue growth in mid-teens percentage range and “eventually achieve” EBITDA margins of more than 40 percent.

MeetMe’s stock is currently trading at a discount to peers, and the valuation appears attractive “for a growing and profitable mobile business,” Harper commented.

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