Huge Profits Ahead?
Today’s chart highlights a fast-growing tech company that’s often overlooked by Wall Street, Meet Group Inc (NASDAQ:MEET).
Headquartered in New Hope, Pennsylvania, Meet Group owns a portfolio of mobile social entertainment apps. It’s no Facebook, Inc. (NASDAQ:FB) or Twitter Inc (NYSE:TWTR), but the company’s apps do have millions of users.
And because Meet Group is a relatively small player in the business—the company has a market capitalization of around $373.0 million as of this writing—it doesn’t always get mentioned in mainstream financial media. But with a fast-growing business, MEET stock could provide investors with some serious returns down the road.
Meet Group Inc
Right now, MEET Group Inc’s main apps include “MeetMe,” “LOVOO,” “Skout,” and “Tagged.” They are available on “iPhone,” “iPad,” and “Android” devices in multiple languages.
In the fourth quarter of 2018, MEET Group’s portfolio of apps had an average total monthly active user (MAU) base of 17.6 million, including 15.2 million average mobile MAUs. (Source: “Full Year and Fourth Quarter 2018 Results Call,” MEET Group Inc, March 6, 2019.)
Notably, these numbers—average total MAUs and average mobile MAUs—were up both year-over-year and sequentially.
If you’ve been following the Internet industry, you’ll likely have noticed the trend that consumers are spending more and more time on mobile devices. Well, Meet Group has managed to capitalize on this trend. In the fourth quarter of 2018, the company’s mobile average revenue per user came in at $2.92, marking a 12.3% increase from the previous quarter and a 28.1% increase from the year-ago period.
There has also been an interesting shift in the way the company makes money. Consider that, in 2017, 73% of Meet Group’s total revenue came from advertising, with the remaining 27% coming from user pay. In 2018, user pay accounted for 60% of the company’s total revenue, while advertising contributed 40%.
Why is this shift so important? Well, because it was driven by what’s hands down the fastest-growing product in Meet Group’s history: live video.
Capitalizing on Live Video
Basically, live video is when streaming media is simultaneously recorded and broadcast in real time.
On Meet Group’s platform, users can purchase credits to send virtual gifts to show interest in broadcasters. Whenever a virtual gift is given, 30% goes to Apple Inc. (NASDAQ:AAPL) or Alphabet Inc (NASDAQ:GOOG), the developers of the iOS and Android operating systems; 35% goes to reward the actual broadcaster; and the remaining 35% is pocketed by Meet Group Inc.
The business is absolutely firing on all cylinders. In February 2018, Meet Group’s annualized video run rate revenue was $19.0 million. Fast-forward to February 2019, when the company’s annualized video run rate revenue had skyrocketed to $82.0 million. (Source: “The Meet Group Reports Fourth Quarter and Full Year 2018 Financial Results,” Meet Group Inc, March 6, 2019.)
And that trend is expected to continue. Management projects that Meet Group’s video revenue in 2019 will double from 2018, and then double again in 2021. Moreover, by 2021, video products are expected to account for the majority of the company’s total revenue.
The best part is, Meet Group is already growing its top line like a startup. In the fourth quarter of 2018, the company generated $52.5 million in total revenue, marking a 31% increase year-over-year. In full-year 2018, Meet Group’s revenue grew 44% from 2017 to $178.6 million.
Looking further back and you’ll see that, from 2015 to 2018, the company’s revenue increased at a compound annual growth rate of 45%.
Meet Group Inc Revenue (Millions)
(Source: “Investor Presentation March 2019,” Meet Group Inc, last accessed April 18, 2019.)
Looking ahead, management expects Meet Group to generate total revenue of between $210.0 and $215.0 million in full-year 2019. At the midpoint, that would represent a 19% increase from what the company earned in 2018.
As you would expect, these kinds of growth rates have cheered up investors. Over the past 12 months, shares of MEET stock have surged 108.8%.
MEET Stock Chart
Chart courtesy of StockCharts.com
Usually when a stock doubles in price, it becomes expensive. But with a share price of about $5.00 and a market cap of $373.0 million, that’s not really the case for MEET stock.
You see, as I mentioned earlier, the company generated $178.6 million of revenue in 2018. So, based on its current market cap, Meet Group Inc is basically trading at just over twice its sales. Looking around, it’s very rare to see an Internet company with double-digit growth rates but a low-single-digit price-to-sales ratio.
And if you are wondering whether this small-cap tech stock can one day turn a profit, be aware that the company is already profitable. In 2018, Meet Group generated an adjusted net income of $27.5 million, or $0.36 per diluted share.
Value cannot go unnoticed forever. If the company can keep up its growth momentum, it probably won’t be trading at five bucks for much longer. Double- or even triple-digit percentage gains could be in the works.