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MeetMe (MEET) Stock Rallies on News of Skout Acquisition

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Shares of MeetMe Inc. gained nearly 12% yesterday after the dating app operator announced its acquisition of one of its smaller competitors, Skout on Monday. MeetMe has inked a definitive agreement to acquire Skout in a cash-and-stock deal.

As per the agreement, MeetMe will pay $28.5 million in cash and approximately 5.37 million of MeetMe shares worth a total consideration of $54.6 million, based on the company’s Jun 24 closing price of $4.86. The acquisition is anticipated to be completed on Oct 1, 2016.

San Francisco-based Skout is a global mobile networking company that develops apps for dating and chatting. These apps are available in 23 languages and the company has a wide user base across more than 100 countries.

In May 2016, Skout had 3.5 million monthly active users and the company has added an average of 42,000 registered users each day so far this year. Last year, it had garnered $28.5 million in revenues.

The acquisition is expected to position MeetMe as the world’s largest global networking service for meeting and chatting with new people. The company expects the buyout to “provide greater scale for monetization and increased profitability for the combined company.”

MeetMe anticipates that the acquisition will increase its user base by 69% to 8.5 million from the current level of 5 million. Revenues are expected to come in at $70.5–$73.5 million with adjusted EBITDA in the range of $26.0–$29.0 million.

Of the total projected adjusted EBITDA for 2016, MeetMe anticipates $7.5 million to be contributed by Skout. The acquisition is anticipated to be accretive to 2016 earnings.

We believe that the Skout takeover will allow MeetMe to gain a larger share of the market, apart from boosting its top- and bottom-line performance.

Currently, MeetMe has Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector are Blucora Inc. , Yirendai Ltd. (YRD - Free Report) and  Internap Corporation , all carrying Zacks Rank #2 (Buy).

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