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Quepasa Turns the Page

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Investors didn't buy into the idea of Quepasa (AMEX: QPSA  ) as the Facebook of Latin America, so now let's see whether it wins over more believers as a larger social player.

Quepasa is acquiring Insider Guides in a $100 million deal that nearly matched Quepasa's $112 million market cap at the time of the deal. Quepasa will pay $18 million and issue $82 million in new shares to complete the transaction. Investors don't seem to mind the use of shares as currency, as the stock was trading up 32% late in the day.

Insider Guides is essentially myYearbook, a popular social site that leans on casual games and its virtual currency to turn strangers into online acquaintances. This deal will transform Quepasa from a thin social-networking site into a more diversified Web 2.0 company.

I was critical of Quepasa's valuation when it was trading as a $220 million company earlier this year. The engagement wasn't there, given the puny number of page views it was serving up relative to its cumulative base of registered users. Things didn't get any better in its latest quarter, when most of the merely $2.2 million it delivered in profitless revenue came through an advertising deal with a sponsor affiliated with one of its board members.

Quepasa tried to portray itself to stateside investors as the social-networking hub of choice for Latin Americans, but that storyline resonated only with those who were unaware of Telefonica's (NYSE: TEF  ) Tuenti or Google's (Nasdaq: GOOG  ) success in Brazil with Orkut. The engagement just wasn't there for Quepasa, and that became evident when the stickier LinkedIn (NYSE: LNKD  ) and Renren (NYSE: RENN  ) came public with the kind of metrics that are worthy of the niche's stickiness.

This will be a transformative deal for Quepasa. The company posted revenue just shy of $6.1 million last year, matching its operating loss. Insider Guides' myYearbook, on the other hands, generated $4.9 million in EBITDA as revenue climbed 53% to $23.7 million.

This doesn't mean myYearbook is getting hosed. It was probably too small to go public on its own, even with investors clamoring for the IPOs of Zynga and, eventually, Facebook. The emphasis on teens and young adults at myYearbook is also a tough area to monetize, though the company appears to be doing just fine financially.

I went to sleep last night as a bear on Quepasa. I woke up in an entirely different frame of mind in assessing an entirely different company today. I'm not a full-on believer, but I do feel bullish horns starting to protrude from my head. 

Is Quepasa a long or a short at this point? Share your thoughts in the comments box below.

The Motley Fool owns shares of Google and Telefonica. Motley Fool newsletter services have recommended buying shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz is Hispanic, but he isn't drawn to as a social-networking site. He owns none of the stocks in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 20, 2011, at 5:49 PM, EquityBull wrote:

    Congrats to the Cooke's for selling their company at such a young age. These founders of MyYearbook live in my town. Great to see them do well on this deal after years of hard work.

  • Report this Comment On July 20, 2011, at 11:56 PM, StockPapa wrote:

    Love It!!! Quepasa is finally getting the recognition it deserves.

  • Report this Comment On July 26, 2011, at 3:38 AM, rodessa wrote:

    Quepasa has only 12 M$ of cash, so they have to find 6M$ of cash.16.16 Millions of shares as of March 31, and 82.00 Millions of shares to issue (5 times more than the actual number of shares) .The income per share will be very diluted : 8.3 millions for 98.16 Millions of shares : 0.08 $ per share.Not sure they will find the cash, the suscribers : 5 new shares for 1 share (at what price per share !).

    Quite no visitors in the site...

    So, have to be short on Quepasa !

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