Maran Capital, a Denver-based value-driven investment management firm led by Dan Roller, recently published its Q2 investor letter – you can download a copy here. According to the letter, the investment firm sees a value in Spark Networks SE (NYSEAMERICAN: LOV), a dating company owning premium brands designed for singles seeking serious relationships. In this article, we’re going to take a look at Roller’s thoughts on Spark.
Here’s everything that Roller said about the company in the letter:
Spark Networks is a leader in the global online dating market, going to market under brands including eDarling (Germany, France, Spain, Netherlands, Russia, Poland), EliteSingles (UK, Australia, Canada), JDate (the leading Jewish dating platform globally), and Christian Mingle (the leading Christian dating platform in the US). The company was formed via the reverse-merger of privately-held Affinitas GmbH into the US listed Spark Networks. Effectively, Affinitas bought Spark Networks and used Spark’s listing to go public in the US (as an ADR).
Sentiment is rock bottom for Spark. When investors hear the name, they think of “old” Spark, a sub scale, sub-$30mm revenue, money-losing, underinvested, shrinking business. “New” Spark, though, is a $130mm+ revenue, well-run, growing, profitable, subscription-based business with high insider alignment.
Affinitas (and thus “new” Spark) has been executing a “buy and build” strategy in the online dating space for the last decade. They have grown their Revenue from EU21mm in 2010 to EU86mm in 2017, and expect sales to top EU100mm this year. Affinitas has a history of buying companies for 3-5x EBITDA (after realized synergies). The industry continues to consolidate.
Spark’s market cap is ~$150mm, and $10mm of net debt brings their EV to ~$160mm. They are guiding to $13-18mm of EBITDA this year, putting the trading multiple on that headline number at around 10x EBITDA. But the company is “investing” $6mm worth of EBITDA deficit this year to launch and grow a new brand, Silver Singles. Absent this growth initiative, EBITDA might have been $22mm this year, putting the multiple at 7.3x.
Match.com, the clear industry leader in online dating, also happens to trade at 7.3x, but on a slightly different metric. Yes, Match.com trades at 7.3x sales. On this metric, Spark trades at 1.2x, an 84% discount.
Over the next few years, I think Spark can grow FCF to over $2/sh (from the current FCF generation power of ~$1/sh), and should be valued at $20-30+ per share. Value on a per-subscriber basis based on comparable transactions also yields targets in the mid-high $20s/sh.
Spark Networks’ brands include EliteSingles, JDate, Christian Mingle, eDarling, JSwipe and Attractive World. The company has a presence in 29 countries worldwide.
For the six months ended December 31, 2017, Spark reported a total revenue of €43.5 million, up 15% compared to the six months ended December 31, 2016. Net Loss was €3.9 million, a year-over-year decrease of €4.6-million. For the full-year 2017, revenue rose 16.5% to €85.6 million, compared to €73.5 million during the year ended December 31, 2016. For the full-year 2017, net Loss was €5.6 million, a €6.3 million decline compared to the year ago period.
Shares of Spark Networks SE (NYSEAMERICAN: LOV) are down 5.02% since the beginning of this year. Over the past three months, shares have dropped 2.34%. However, the stock has gained 25% over the past 12 months.