Because It’s Better To Have Loved And Not Lost Then To Have Loved At All

February 14th, 2007 Davis Posted in Technology, Search, Web 2.0 |

People always have pretty mixed feelings when it comes to Valentine’s day. If you happen to be married and/or in love, then it’s a great opportunity to stop and appreciate your significant other for a day, but if you happen to be one of the estimated 27 million households living by yourself, then Valentine’s day is the dumps.

It’s bad enough not having that special someone in your life, but having to spend an actual holiday being reminded that your social life is a complete and utter disaster, is enough to drive anyone into a druken frenzy of chocolate gorging by the end of the day.

If you do happen to be dating someone though, it doesn’t make the day much better. Because Valentine’s Day is the holiday of love, it’s pretty much a mandatory event (or at least it is, if you plan on spending President’s day with your sweetheart ;)) Because businesses know that they’ve got you caught in a love trap, they take full advantage of the situation by extracting as much money from your pocket as they can. On any day of the year, you can go into a florist and pick up a dozen roses for $12, but on this one day, singles are helpless against the profit gouging from the florist cartels and grudgingly pay whatever the market demands, if that’s what it takes to please their lovebird.

Between the high prices and the overall misery that Valentine’s day causes, it would be easy enough for me to just write the whole day off and ignore it, but that’s not really my style. With so many unhappy people trying to find love and with so many people willing to pay so much to fill that void, I’d rather use the day as an opportunity to figure how to cash in on all that grief.

There are a couple of ways that one could try and make a play on Valentine’s day. It would be easy enough to try and invest in a florist and wait for them to report results from their busiest day of the year or you could try buying a chocolate company and use the proceeds from your stock sales to help offset the $50 gouging you are going to take when you buy your spouse a box of chocolates today, but legendary investor Peter Lynch always said that it’s safest to invest in what you know and for me that means internet dating. Online dating services, as one would expect are raking in the dough. Some are better then others, so in the interest of providing my readers with “hands on” investment analysis, it would only make sense for me to do a little “due diligence” to offer my personal insights on the best opportunities in the online dating world.

Match.com - There are essentially two ways to build an internet dating service. You can structure your site to appeal to a targeted niche audience and build from there or you can keep your site as general as possible and try to build the largest dating pool for customers to dip into. When it comes to Match.com, they are the big gorrilla in the dating world and this critical mass continues to propel the company forward. With more listings then any other service, their success continues to drive the company forward and last quarter, the company reported that not only were listings up by 7%, but that revenue was also up 17%. Investors can’t make a direct play on Match.com because it’s owned by IAC/Interactive Corp (IACI), but even beyond Match.com, I like what the company is doing and with Barry Diller being wiling to “buy anything that walks” investors should be looking at IAC more like a VC fund then a diversified internet company. With IAC trading at slightly less than 1.5 times their book, there may be quite a bit of value locked up inside of the company, even if Match only plays a small role.

Consumating - I first came across Consumating a year ago when CNET bought the company for an undisclosed amount. I’ve never had much luck actually dating off of the site, but the community makes looking for a date a lot of fun. The site uses a number of advanced social tools to encourage communication with other members and the community they’ve built is a blast to be part of. People love to use Consumating to play games and there are a constant stream of “Consumeetings” where you can meet people in a low pressure environment. From an investing standpoint though, Consumating isn’t quite ready for prime time just yet. While good for consumers, the lack of monthly fees makes this internet dating play less then ideal for those trying to capitalize on the lack of love in the world. I can understand why CNET would want to build their community out first before tyring to monetize it, but even once the community grows, Consumating isn’t going to be an easy site to monetize. With $2.5 billion in retained losses, CNet is an attractive takeover target right now, but between their widely publicized issues with stock option back dating and questions about them bleeding traffic, make this is one love story that I’m not sure that I want to be part of.

Yahoo! - Yahoo! (YHOO) has been offering personals on their site for years, but anyone who has ever tried to actually meet someone through the service knows how bad Yahoo! really is at finding love. The ads are poorly written, the layout is confusing and searching for the right match is more work then it’s worth. Fortunately, for Yahoo! though, the company does have a dating gem in their portfolio. When most people think of Flickr, they think of photo sharing site, but for single people who are interested in meeting the sensitive artist type, there is no better place to find love on the net then through Flickr. With regular community organized meet ups and plenty of social tools built into the site, there are a lot of Flickr users who take advantage of the passive nature of comments and faves to do a little flirting on the site. Yahoo! isn’t necessarily making a boatload of cash from the activity of course, but it’s still a nice compliment to what they do overall. The p/e on their stock makes the company look a little expensive right now, but given all the doom and gloom about the company and with their stock price down about 6% from where it was trading at last Valentine’s day, there may be an upside if Yahoo! can turn things around and tap into the Google love they’ve been missing out on for the last few years.

Spark Networks - Spark Networks (LOV) is one of the few pure plays on the internet dating scene that an investor can make. With a market cap of only $188 million, this is a high risk/high reward type of stock. The company runs a number of international dating sites, but their flagship brands are American Singles and Jdate. In the last quarter Jdate had about 75,000 paying customers and brought in revenue of $7.2 million. For all of 2006, JDate did $28.3 million in revenue which was up 9% from the prior year. When you look at American Singles, the numbers aren’t quite as strong. For the fourth quarter they brought in $4.7 million, which was down about 30% from the same quarter a year prior and had about 68,000 customers at the end of the year. In addition to American Singles and Jdate.com, the company also has another 92,000 customers that belong to other various sites in their portfolio. While I like the pure play exposure, the international angle and the small market cap, Spark Networks may be a little too high risk for my blood. In looking at the numbers it’s hard to tell whether this is a growth or a value play and without seeing a clear indication that the business is back on track, investing in their stock may be a bit like going out on a blind date, you’re never quite sure what to expect. If the company can reignite their subscriber growth, there could be love in the air, but without seeing more significant growth, I don’t feel any sparks when I look at this stock.

PlanetOut - PlanetOut (LGBT) is really more of a publishing company then a dating portal, but no internet dating list would be complete without a way for my friends in San Francisco to invest. While not really my cup of tea, the site provides a place for people from alternative lifestyles to meet. In looking at the financials on the company, there isn’t really a whole lot to like. The stock has an $80 million market cap, so in order to invest you need to be comfortable with penny stocks. Over the last year, the company has seen their gross margins absolutely whacked, SG&A has continued to climb and is now causing the company to bleed money, and unlike many of the other internet dating sites, this company is saddled with a healthy amount of debt for their size. If PlanetOut were to cut their staff by 50% or boost their subscribers by 100%, then I could get on board this stock, but given their current status, there isn’t much room in my own portfolio for this type of alternative investment.

Lavalife - Of all the ads that I see for internet dating sites, Lavalife is the best. They are clean, entertaining and unlike all the big breasted ads for True.com, they attract a core audience that tilt the demographics into my favor. Lavalife is owned by a company named Vertrue (VTRU) and while they boost a healthy 3.1 million paying subscribers, other parts of the business are under pressure right now. The company makes up the lionshare of their revenue from marketing income and with recently things have gotten really tough. Nonetheless, with a current p/e around 19 and a forward p/e of less then 15, this stock is poised to make a run. If Verture can continue to grow their dating business and are able to shore up their marketing revenues, this stock should be love at first sight for investors getting in now. While there is still a healthy degree of risk to investing in a company like Vertrue, of all the dating sites profiled, they appear to have the best risk/reward equation for finding true love in my own portfolio.

It’s easy to get upset about not having a date tonight or bothered by the high cost of having take a girlfriend out, but if you look at Valentine’s day from a capitalist point of view, plenty of profit opportunities exist. While the Beatles are famous for saying that you can’t buy me love, I think it’s still worth giving it a shot.