Spark Networks Pens Open Letter To Shareholders After Poor Stock Market Performance

Spark Networks
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Despite completing a $255 million acquisition of Zoosk in July, and becoming the second-largest online dating company in North America by revenue, Spark Networks has struggled this year. Shares of Spark have lost more than a third of their value thus far in 2019 and over 50 percent since the deal to acquire Zoosk closed on July 1. To address its poor stock market performance, Spark Networks has released an open letter to its shareholders.

The letter expresses disappointment at the company’s falling stock price and suggests that the losses were primarily due to “concentrated share sales by a minority of our shareholder base,” not the result of under-performance. Spark Networks speculates that the shareholders in question were primarily early stage investors in Zoosk and Affinitas who were looking for liquidity after 10 years.

Spark Networks explains in part their optimism, by pointing to recent studies that shows that the online dating industry continues to grow in leaps and bounds. In 2010 online dating was responsible for 20% of how couples met. By 2013 it had past "met through friends", and by 2017, had reached 39% with no signs of slowing down.

In the second half of the letter, Spark Networks lays out a three-phase strategy for continued growth.

Phase one is dedicated to reaching critical scale to maximize the company’s profitability potential. The Zoosk acquisition more than doubled Spark’s revenue base and pushed the company closer to its goal of delivering over $50 million in 2020 adjusted EBITDA once the acquisition has been fully integrated. Spark is now focused on reducing overhead costs from Zoosk while improving marketing efficiency and customer conversion rates. The company intends to significantly reduce its San Francisco workforce by the end of the year and exit the city entirely by the end of June 2020.

Phase two is devoted to becoming a global leader in the serious dating segment. Though this segment of the market is not nearly as active as the casual dating segment, and is currently dominated by Match Group, Spark believes it has the potential to become a profitable focus for the company. “We have the scale, the technological platform, and the experience to capitalize upon the opportunity at hand,” says the shareholder letter. “To this end, we are building a single, highly-flexible, shared technology platform to efficiently support our global portfolio of serious dating brands.”

Phase three focuses on new growth initiatives. Spark says its near-term objective is to “realize all the Zoosk synergies, in order to drive increases in profitability and de-lever our balance sheet.” Over the coming years, the company plans to devote resources to launching new freemium products and furthering its geographic expansion.

Spark Networks announced intentions to continue releasing periodic shareholder letters going forward to share updates on developments within the company between bi-annual financial reports.