What To Make Of Meet Group's 'Conservative' Guidance

Shares of Meet Group Inc (NASDAQ: MEET) plunged more than 12 percent on Wednesday in reaction to the company's first quarter report and an outlook that analysts at Loop Capital Markets described as conservative.

Loop Capital's Blake Harper maintains a Buy rating on Meet Group's stock with an unchanged $9 price target. The analyst's bullish stance stems from the company's release of its new in-app live-streaming video feature could prove to be a catalyst for future user growth, not to mention the potential for revenue growth.

Harper also noted Meet Group's Skout business helped contribute to daily and monthly active user metrics in the quarter although the company believes the segment could achieve its EBITDA targets over the coming quarters. Nevertheless, Harper believes the declining user metrics is "slightly concerning."

Conservative Guidance

In conjunction with Meet Group's report, the company provided investors with forward-looking guidance. The company expects its second quarter revenue to be between $30 and $31.5 million and adjusted EBITDA to be $6 to $7 million which implies margins of 20 to 22 percent and falls short of the analyst's prior estimate of 31 percent.

The company did attribute its lower than expected margins to the recent acquisition of if(we).

Overall, the analyst believes that Meet Group's guidance is "sufficiently conservative" to the point where it can be beaten when the company better integrates all of its different apps and improves the live streaming video service.

Bottom line, the analyst believes that the stock's 2.1x EV/Sales multiple on 2018's estimates, 6.6x EV/EBITDA, and 10.3x P/E multiples makes the stock undervalued and "well below" its peers. A $9 price target represents 3.5x EV/Sales, 10x EV/EBITDA and 15.0x P/E on 2017 estimates and assuming the company grows at 15 percent year-over-year on an organic basis.

At last check, shares of Meet Group were down 12.2 percent at $5.54.

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