Even though social entertainment service Meet Group (MEET, Financial)’s stock price has surged 170% higher in the last year, further growth could be ahead.
The company is focused on improving user experience through the introduction of innovative new products that may improve its monetization potential. It is also expected to expand into new territories and niches, while further acquisitions could enhance its overall performance.
Even though it has significantly outperformed the S&P 500 in the last year, the stock’s valuation appears to offer a margin of safety. It could deliver further growth over the long run.
Innovation
The launch of Battles on the company’s core video platform could drive monetization, as well as attract new users and enhance the user experience. Battles bring together two live streamers in a competition, with users being able to give gifts to support their favorite streamer. The streamer with the most votes is named the winner.
Battles were recently launched on the company’s Meet Me, Skout and Tagged channels. So far, they have proved popular with users, comprising a meaningful portion of daily credit spending. Plans to make it easier for streamers to identify top fans and to determine their progress through generating followers and gifts could increase the appeal of Battles. Alongside plans to improve search and discovery of streamers who may be of interest to users, this could lead to increasing differentiation versus sector peers.
Growth potential
Meet Group is also set to launch a new product called Levels. This adds a gamification element to live streaming through establishing aspirational ranks for users to achieve, as well as exclusive benefits for them to unlock. Levels are expected to increase user engagement, with users having previously responded positively to contests, badging and other forms of recognition. They provide tangible rewards that are expected to stimulate user behaviour as streamers and their fans seek to progress through the ranks. This could increase customer loyalty and strengthen the company’s competitive position.
The recent acquisition of global same-sex dating and social media app Growlr is set to provide the company with growth potential in the gay dating segment. It operates on a subscription and freemium model, with over 200,000 highly engaged daily active users. In order to enhance Growlr’s offering, Meet Group plans to introduce its video model to the platform, with this strategy having proved successful in other acquired properties. It also expects to grow advertising within the app, while building on the options for users to make in-app purchases.
Risks
Meet Group’s recent fourth-quarter earnings report showed that the company’s 31% rise in revenue was solely due to higher user subscription fees. Its advertising sales continued to slow, falling to $21 million versus $25 million in the same period of the previous year. Weak consumer confidence in the U.S. could contribute to slower growth for the company in the near term. Consumer confidence declined 0.2% in February and is forecast to continue its downward trend through the remainder of the 2019 calendar year.
In response, the company has plans to expand its product offerings into new geographies and niches on both an organic and inorganic basis. As part of this, it intends to develop stand-alone apps that will provide a sense of community for users beyond its existing audience. Meet Group also plans to complement broadcast video with one-on-one and group video, seeking to enable different types of rich interactions between its members. Through leading with video across a range of apps, it believes it will be able to improve user interactions and drive engagement, as well as monetization, higher.
Outlook
With Meet Group forecast to post a rise in earnings per share of 15% in the next fiscal year, its financial prospects appear to be improving under its new strategy. Since the stock trades on a price-earnings ratio of 11, it seems to offer good value for money.
The acquisition of Growlr could boost its financial performance, while a focus on enhancing the user experience through Battles and Levels could improve monetization opportunities. The company’s plans to move into other new geographies and niches may also help it to overcome potential uncertainty regarding the U.S. consumer outlook.
Even though the company’s stock price has risen significantly in the last year, it could still offer investment potential for the long run.
