Spark: Online Dating Company, Cheap After Selling Pressure in 2019

Patrick Retzer of Retzer Capital Management presented his in-depth investment thesis on Spark Networks (US: LOV) at Best Ideas 2020.

Thesis summary:

Spark Networks is a leading global dating company with a widening portfolio of premium and freemium apps. The company was formed in 2017 following a merger between Berlin-based Affinitas GmbH and US-based Spark Networks Inc. Spark further consolidated its portfolio in July 2019 when it acquired Zoosk, making a two-fold increase in scale and making Spark Networks SE the second largest dating company in North America, with over one million monthly paying subscribers. Both transactions, however, gave liquidity to two sets of shareholders that formerly could not easily sell their shares, and sell they did in 2019, driving the stock from a high of $17.64 per share in March to a recent price of ~$4.50 per share. Therein lies the opportunity. Spark’s multiple has contracted from 8x to 2.2x market cap/EBITDA.

A new, proven CEO was recently named and “smart money” has been buying large positions around recent levels. The company has publicly guided to EBITDA of $50 million (about $2 per share) in 2020, and Patrick believes that number will only grow as the company pays down and refinances expensive debt and wrings synergies out of its now impressive scale. With the massive liquidation of shares apparently spent, Pat believes the stock should double or triple from recent levels, and two sell-side firms have price targets of $17.50 and $19.00 per share.

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About the instructor:

Patrick Retzer spent the first several years of his career in public accounting and then developing tax planning software all while earning a Master’s in Taxation. He moved into investment management in 1987, joining Heartland Advisors, manager of the Heartland family of mutual funds in Milwaukee, Wisconsin. While at Heartland, he was portfolio manager of the Heartland US Government Securities Fund (#1 General US Government Fund for the 5 years ended 12/31/93 according to Lipper), he started and managed the Heartland Wisconsin Tax Free Fund (Wisconsin’s first double tax free fund) was co-manager of the Heartland Value Plus Fund, and managed private accounts. In 2000, Pat left Heartland Advisors to start Retzer Capital Management, LLC and the Retzer Fund I, LP. Pat believes his 30+ years of experience in both fixed income and equity management as well as his background as a CPA and tax specialist give him a unique perspective on the financial markets.