The Meet Group's Latest Acquisition Brings International Exposure, Diversified Revenue

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Meet-up app operator The Meet Group (NASDAQ: MEET) continued its acquisition sprint last week, scooping up German-based dating app company Lovoo for $70 million. That was its third company purchase in the past year and will provide The Meet Group with more users, new revenue streams, and more international exposure. 

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Additionally, the purchase of Lovoo -- which is the No. 1 dating app in Germany, Switzerland, and Austria (based on a number of downloads) -- puts The Meet Group squarely in the dating app space and makes it a stronger competitor to reigning king The Match Group (NASDAQ: MTCH).

A match made in Europe

The Meet Group CEO Geoff Cook said in a statement that Lovoo will be the company's largest app based on user traffic and will be accretive to non-GAAP earnings starting in 2018. Let's take a quick look at both how Lovoo will expand The Meet Group's user base and how it'll boost the company's financials. 

Lovoo App Metrics

Units

Monthly active users (MAU)

5 million

Daily active users (DAU)

1.9 million

New global registrations per day

47,000

Those user numbers out of context may not mean much, but they represent huge growth for The Meet Group. The addition of Lovoo will increase The Meet Group's mobile monthly active users (MAUs) by 48% compared to second-quarter 2017 and will increase mobile daily active users (DAUs) by 71%. 

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In sum, the purchase will lift The Meet Group's monthly active users to 15 million, which is more than three times the amount of monthly active users the company had just one year ago. 

Overall, the deal looks like a home run for The Meet Group, which has significantly grown its user base through a series of acquisitions over the past year. The difference this time is that it won't integrate Lovoo into its flagship MeetMe app, as it did with some of its other purchases; instead, it will maintain the brand and the standalone app.

On the fiscal front, Lovoo's trailing-12-month revenue of $32.4 million comes from a mix of sources: subscriptions (48%), in-app purchases (24%) and advertising (28%).

The purchase will bring more diversity to the acquirer's revenue streams. At the end of Q2, The Meet Group earned 76% of total revenue from advertising. After the deal closes, its overall proportions of in-app purchase and subscription revenue will be significantly higher.

And obviously, this move diversifies its revenue geographically. The company said that international mobile revenue will jump by 169% and mobile non-advertising revenue will pop by 168% with the acquisition. 

Finally, the acquisition will help The Meet Group go head to head with its larger, and much stronger competitor, The Match Group. Match ended Q2 with about 2.6 million paying international customers, up 31% year over year. It made about 38% of its revenue from international apps and has been aggressively pursuing growth in India, Brazil, Turkey, France and the U.K.

While The Meet Group can't compete with the size of The Match Group right now (its Tinder app alone has more than 50 million users), the Lovoo purchase is a strategic play to grow the company's own user base internationally. The Meet Group says it's going to keep Lovoo offices open in both Dresden and Berlin and bring all of its 97 employees on board. Keeping the two companies somewhat separate should allow Lovoo to keep growing in the same way that it was before.

Betting on more acquisitions

Lovoo appears to be a smart buy, and its dominance in Europe should give The Meet Group a foothold in the international dating app space, and add solid revenue to company's top line as well.

Management has already proved adept at buying up companies that both build The Meet Group's brand and grow its users. Investors should expect it to continue this strategy. But for now, keep an eye on how well the company converts those users into paying subscribers and watch to see if it can continue increasing user numbers and revenue from the growing list of dating and social apps in its arsenal.

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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool recommends Match Group. The Motley Fool has a disclosure policy.