One of last year's hottest social media stocks is coming under fire in 2019. Shares of The Meet Group (NASDAQ:MEET) tumbled 7% on Monday, after a New York Post story came out over the weekend suggesting that Apple (NASDAQ:AAPL) was about to boot it from its App Store on concerns of prostitution and other forms of adult entertainment taking place on MeetMe's live-streaming platform.
The Meet Group defended its fast-growing video offering when the accusations were raised by a bearish blogger earlier this month, a move that sent the once-red-hot shares to a fresh 52-week low. It stood by the safety that MeetMe provides for its 15 million active users, pointing to the human and tech filters that help sniff out dubious visual content as well as the proprietary text-monitoring system for threats and abuses. When Oppenheimer initiated coverage of the stock late last week -- with a bullish rating -- it seemed as if the worst was in the past for The Meet Group. The uncertainty will continue now until investors see if there's any meat to the Post article.
Making the right connection
The Meet Group shares soared 64% last year, and by the time the stock hit a multiyear high in March of this year, it had more than doubled since the start of last year. It's been all downhill since then, as the stock has shed nearly half of its peak value.
With beefy slides after a mixed fourth-quarter report in early April and a more disappointing first-quarter release last month, investors have soured on the stock. Now, there are fresh concerns that Apple may either boot it from the App Store or force it into restrictive changes if it wishes to continue to be available on iOS devices.
Investors last year were cheering the growing popularity of video streams to its MeetMe and Skout social discovery and dating sites. By the time the first quarter of this year rolled around, video-related revenue had roughly quadrupled to account for 40% of The Meet Group's revenue. Members can purchase digital currency to tip popular performances -- a slippery slope, naturally -- and since The Meet Group and Apple each commands roughly a third of the revenue generated from the purchases.
Keeping porn and violent content off mainstream social media sites is never going to be a perfect process. The problem with live-streaming platforms that feast on virtual tip jars is that by the time any specific incident that crosses the line gets reported, it's already over. A lot of The Meet Group's growth -- including Oppenheimer analyst Jed Kelly's bullish initiation last Thursday -- is riding on the success of that video service.
Kelly feels that the the push into live-streaming video will improve the quality of The Meet Group's revenue. His price target of $7 is more than double where the shares are now, as Kelly sees more paying users contributing to improving sentiment for the stock as well as justifying higher valuation multiples. The upside is certainly there if The Meet Group's social offerings are still on Apple's App Store in the future, especially the way that video helped drive the better-than-expected 32% revenue growth in The Meet Group's latest quarter. The stock has been volatile in the past, and that's not going to change as the gray clouds loom overhead.