Spark Networks: A Strong Investment in Online Dating

Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Seen any online dating commercials lately? Chances are they were for market leaders Match.com and eHarmony.com. While these two online dating sites offer a stream of revenue for their parent companies, they also get lost in portfolios of online properties. Spark Networks (NYSEMKT: LOV) is a pure play on the online dating business and offers investors several ways to play niches in that subscription market.

About Spark Networks

Started in 1997, Spark Networks began with the property Jdate.com. That property,  the leading online dating community for Jewish singles, and Christianmingle.com make up the majority of the company’s portfolio and revenue. Here is a look at the other properties owned by the company: Believe.com, dailybibleverse.com, christiandating.com, faith.com, christiancards.net, ldssingles.com, blacksingles.com, silversingles.com, catholicmingle.com, bbwpersonalsplus.com, hurrydate.com, spark.com, jewishmingle.com, adventistsingles.com, interracialsingles.com, deafsingles.com, militarysingles.com

Jdate

Jdate is the leading Jewish dating site in the world, with sites in the United State, France, United Kingdom, and Israel. The site has over 750,000 members who create profiles and connect with other members. Amazingly enough, the site is responsible for 52% of all Jewish marriages that start online. This translates to number-one market share and a higher percentage of resulting marriages than all other Jewish dating sites combined.

ChristianMingle

ChristianMingle was founded in 2001 and is now the leading faith-based online dating site in the world. The site has over nine million members, including over three million added in the last year. In the most recent first quarter, Spark Networks reported a 51% increase in paid subscriptions for its ChristianMingle property. The site remains the most important piece to Spark Network’s portfolio and has put up huge growth numbers. In the first quarter of 2012, ChristianMingle passed Jdate as the biggest revenue contributor for the company.

Financials

In April, Spark Networks reported strong first quarter financials. Revenue increase 19% to $17.3 million from the prior year. Revenue also increased 6% from the prior quarter. This marked the ninth and tenth quarters, respectively, for year-over-year and sequential growth. Average paid subscriptions increased 23% to a record 300,000. The majority of revenue came from ChristianMingle ($9.9 million) and Jdate ($6.5 million). The biggest positive for the company going forward could be its move into mobile. In the first quarter, mobile log-ins rose 63% on ChristianMingle and 66% on Jdate. Spark Networks also launched a mobile application for its ChristianMingle property during the month of April.

Competition

Match.com is the largest online dating site in the United States. The site, which is owned by InterActiveCorp (NASDAQ: IACI), is part of a portfolio that also includes chemistry.com, ourtime.com (50+), blackpeoplemeet.com, singleparentmeet.com, loveandseek.com, and personals.com. Loveandseek.com poses the biggest threat to Spark Networks' ChristianMingle.com, as it caters to Christian singles.

The problem with InterActiveCorp is that it is not a pure play on online dating. The company also owns search, travel, and other internet-related assets. In fiscal 2012, online dating contributed $713 million of the reported $2.8 billion in total revenue. This represents 25% of the company’s yearly revenue, giving investors a way to play the online dating market.

While Match.com boasts important numbers of 1.8 million paid subscribers, eight languages, and 25 countries, the site does not cater to one particular niche and isn’t available as a direct investment. Match.com’s main rival eHarmony is privately held, so there would always be the possibility of InterActiveCorp trying to buy out Spark Networks to strengthen its position in the online dating market and diversify into new niches. After all, InterActiveCorp has bought out smaller dating sites OKCupid and Meetic in the last two years.

Investors looking for a way to play online dating and a population boom could also consider investing in Jiayuan.com (NASDAQ: DATE). The Chinese leader in online dating was founded in 2003 and went public in the United States in 2011. Jiayuan.com has seen its shares drop over 50% since its IPO. However, revenue increased 24% in fiscal 2012 and is expected to increase 20% during fiscal 2013. The company is expanding its global reach and continues to pursue mobile applications. Membership is declining, but the all-important number of paying subscribers continues to increase, as does revenue per subscriber.

Analysts

Analysts on Yahoo! Finance expect Spark Networks to continue to post a loss in fiscal 2013. This is the likely result of heavy marketing by the company to increase its subscription bases. Analysts expect a loss of $0.37, which would be a large improvement from the $0.72 per share loss posted in fiscal 2012. Analysts expect revenue to increase 20% to $74.0 million in 2013 and 20% to $88.8 million in fiscal 2014. That figure in 2014 should be easily surpassed if the number of paying subscribers increases. The company is expected to post a profit of $0.11 in fiscal 2014.

Conclusion

Shares of Spark Networks saw a bit of a swing this past week, as fund manager Whitney Tilson had positive things to say about the company at an investment conference. Tilson compared Spark Networks to Netflix, citing the company’s subscription-based model, low perceived price to customers, and niche domination. These reasons also led Tilson to triple his position in the company (he has owned shares for three years). Tilson now owns over 1.9% of Spark Networks' shares.

The opportunity remains the same for the average investor. If you think online dating is here for good and want to get a piece of the action, check out this stock trading under $10. Analysts are sure to start sniffing around this company now that Tilson has put it in the spotlight. Shares are up less than 10% since their public debut in 2006. A one-year period between 2008 and 2009 saw shares trade below $3. Don’t expect shares to stay below the $10 level forever, and don’t miss your chance to buy into this niche leader. 

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Chris Katje has no position in any stocks mentioned. The Motley Fool recommends Jiayuan.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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