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MeetMe Closes Skout Buy; Declares Q3 Preliminary Revenues

INXN MEET WEB YRD

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Social network operator, MeetMe Inc. (MEET - Free Report) recently announced the completion of the much awaited acquisition of Skout, a dating app operator. The two companies had entered into a cash-stock acquisition deal in June this year.

The deal was valued at $54.6 million, of which MeetMe paid $28.5 million in cash, and the remaining in the form of its common stock. In connection with the acquisition, MeetMe has offered a stock option plan for Skout’s 25 employees to join the company as non-executive employees. These employees can purchase up to 355,000 shares of the company.

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 adds an average of 42,000 registered users each day. Last year, it had garnered $28.5 million in revenues.

Skout’s third-quarter 2016 revenues are expected to be approximately $6.6 million. In the trailing twelve month period, it had touched nearly $26 million.

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.”

At the time of signing the deal, MeetMe had anticipated the acquisition to increase its user base by 69% to 8.5 million from 5 million at the end of May 2016. The company anticipates the deal to be significantly accretive to its 2016 revenues as well as earnings.

Furthermore, considering the acquisition of Skout, MeetMe, during its second-quarter 2016 earnings conference call, had revised its revenue guidance. The company now expects revenues for 2016 to come between $73.5 million and $75.5 million, up from the earlier guidance range of $70.5–$73.5 million.

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.

Concurrent with its announcement of completing the Skout acquisition, MeetMe provided preliminary revenue results for third-quarter 2016. The company anticipates reporting revenues of $17.2 million during the quarter.

However, it seems that MeetMe’s preliminary revenues results fell below investors' expectations as reflected from a sharp plunge in share price. The stock lost over 8% of its value during yesterday’s intraday session.

Furthermore, the company’s preliminary revenues remained below the mid-point of its own guidance range. MeetMe, during its last quarterly conference call, had anticipated  third quarter revenues in the range of $17 million to $17.5 million (mid-point $17.25 million).

The company is expected to release its full third quarter results in early November, following which we will have a clear picture of its financial position and growth prospects.

Zacks Rank & Key Picks

Currently, MeetMe carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the Internet Services industry space are Yirendai Ltd. (YRD - Free Report) , Web.com Group, Inc. (WEB - Free Report) and Interxion Holding NV (INXN - Free Report) . Web.com and Interxion carry a Zacks Rank #2 (Buy) while Yirendai sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Yirendai has witnessed upward estimate revisions for full-year 2016 in the last 60 days and the stock has gained over 32% so far this year.

Web.com has a strong earnings surprise history. The stock has surpassed the Zacks Consensus Estimate in the trailing four quarters with an average positive surprise of 10.3%.

Interxion expects long-term earnings per share growth of 13.7% and the stock has gained over 19% so far this year.

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