Contrarian Market Musings, on 12/18/19

I was first introduced to NYSE:LOV through my ownership of JDate. Affinitas GmbH merged with Jdate (NYSE:LOV) in 2017.  LOV acquired Zoosk in 2019 for 258 million.

LOV is a falling knife that doesn’t screen well. A nano cap,low p/s down 59% over the past six months and strong outsize free cash flow. Spark Networks, NYSE: LOV is now German based headquarter.

The recent price decline began after the initial positive reaction for the Zoosk acquisition. LOV price crushed from Affinitas and Zoosk few long term initial investors selling after accruing years of large long term gains. Management released an open letter on the stock decline (click). The six-month ~60% price drop creates an excellent buying opportunity.

Spark Networks has over one million global monthly paying subscribers. It also expects to achieve more than $50 million of adjusted EBITDA in 2020.The current 111.84 million market capitalization under values those customer metrics. Headquartered in Germany, Spark Networks is America’s second-largest dating company.

Spark Networks (LOV) is a portfolio of dating sites. Zoosk, EliteSingles, Jdate, Christian Mingle, eDarling, JSwipe, SilverSingles, and others encompass the company. Spark Networks formed when Affinitas GmbH and Spark Networks merged in 2017.  Zoosk added in 2019. Affinitas GmbH a small German startup with no presence in North America. But over the last few years created an NYSE-listed business with over $300 million in total revenue that is also the second largest player in North America.

Positive institutional changes during the third quarter of 2019.

Peak6 adds 1,763,185 shares during November 2019 at $5.60. Increase the position to 2,272,485 shares at an average price of $6.99.

Canaan Partner purchased 4,077,777 shares at an average price of $8.23 during quarter 3, 2019. Down -47.14%. LOV represents 70% of its total portfolio value.

HARBOURVEST PARTNERS new holding during 2019, Q3 502,576 shares at an average price of $8.21

Osmium Partners added 166,332 shares to raise its stake to 1,412,284 shares at an average price of $7.14. Represent 9.77% of its portfolio and or 5.43% of shares outstanding.

Deer VII & Co. Ltd.’s Portfolio 2,045,318 shares at an average price of 8.21 or 7.86% of shares outstanding or 13.06% of the portfolio.

Affinitas GmbH was a small private European company, fast-growing and generating strong FCF. That’s how they could merge and list on NYSE as Spark Networks (LOV). LOV before the merger known for Jdate. Jdate (LOV) had historical periods of outsized FCF. Not until last ~ two years did they falter from outdated technology before the merger. Zoosk was a private, mismanaged, and failed IPO. But, online dating is an asset-light FCF machine. Now NYSE: LOV is the second largest online dating company in North America. The new organization has talented,proven management.

These thoughts need further analysis, like the financing details of the Zoosk acquisition. But at this time I like the odds of a future higher stock price.

Spark story from their website. 


Long: LOV