Spark owns one of the truly great franchises in online dating - JDate.com. JDate - a Jewish Singles dating network is utterly entrenched in its community - mums buy their daughters subscriptions - at least then the boy will be Jewish. I know several users - people who would not consider using another site. A subscription to JDate is a rite-of-passage almost as important as a bar or bat mitzvah.
JDate has been around for a long time - and still goes strong.
I suggested the stock to a friend (who probably wishes to remain anonymous) and here is what he said:
I cannot think of a sector more likely to be disrupted in any industry.
The thing about dating is that the lifespan of a dating person is roughly 18-25 years old (or at least that will always be the median so that demographic will set social norms, even for 40 year old divorcees). So you are dealing with people who live and breath technology and 'live' for only seven years. 'Science advances one funeral at a time' same with tech but here everyone dies young. So the base rate of innovation and cultural evolution is super high. There is a huge backlash against static dating pages as they are inaccurate (i.e., everyone loves travel, hiking no one says they love dungeons and dragons) ; every girl finds the one amazing photo of themselves.
Secondarily, you are at the beating heart of the mobile revolution. Dating requires physical proximity so there are a wave of companies trying to do stuff like meetups of 4-6 people for a drink and then they can assess each others dating potential.e.g., www.grouper.com (one could do six Jewish people meeting up too).
Thirdly - the over representation of Jewish entrepreneurs is insane- Ballmer. Zuckerberg, Page and Brin etc. Zuckerberg only invented FB to get a date! You are literally betting against every sex starved Jewish computer science undergrad. Bad bet.
My friend is almost certainly right - at the end a bet on Spark Networks is a bet against every sex starved Jewish computer science undergrad (SSJCSU) and that is likely a very bad bet. Flatly stupid even.
But so far legions of SSJCSUs have not succeeded in knocking JDate off. Sure they invented Facebook - but the original JDate franchise is still there - robust through all of this. I am sure that some SSJCSUs have tried and indeed are still trying.
So why does JDate still exist? Why this strange failure?
Not impressed by your friend's arguments: I agree that technology moves fast, but any good site will move with it. He then segues into an argument about the false information on dating sites, which may be true, but is not peculiar to JDate.
Next argument about potential competition may well be true, but it was also true six years ago, just as it was true about Amazon or Ebay. They faced the same threats of low barriers to entry, and have dealt with them. I know nothing about JDate so cannot argue why they will be able to fight off competition, but the mere existence of potential competition is not a reason to short a stock, especially not one with a track record of execution.
One argument I would make is that religions are inherently conservative - they preserve "eternal" values from generation to generation, in order to cement a community. For that reason, you would be more likely to use an "old" system, because it's designed to preserve the same community as the religion.
I am sceptical about Facebook, because I can see that my daughter and nephew don't use them, precisely because I use them, and can see what they are doing. So each generation will move from social network to social network, in order to hide things from their parents. Now, presumably Jewish parents are not on JDate, but they will have a stake in their children using it. And their children may use it even if they have no plans to find a Jewish partner, just in order to shut their parents up.
In which case JDate is one of those magical products like jewellery, chocolates, and high end spirits which can charge high margins, because in most cases the person buying them is not the person using them.
1st off: I have 0 opinion on J-date as an investment, I just want to help steer the conversation in the right direction. I think this comment is looking at the wrong demographic. The two people I know who use J-Date more than any others are my parents. Divorcees have a very hard time meeting people, and find it very challenging to go to these meetups for various reasons. My father is now remarried to a woman he met off J-date and my mother is still looking. I'm 31, and not a single one of my friends or peers that I know of is on Jdate. I know a few who tried it shortly out of college, but no one who really saw it through to marriage.
My parents and their divorced peers on the other hand are all completely hooked on J-date and use it as the primary means through which to meet others. It's harder at that point in life to have people make introductions for you, and the "singles" gatherings at local establishments are full of sleezeballs per both parents' word. To that end, I view Jdate as much more a bet on divorce and the challenges of being middle aged and single in an uncertain world driven by technological change, where skepticism is natural.
Probably related to:
1. The power of habit (I believe JDate was popular before Facebook arrived on the scene)
2. Some anonymity
3. A high rate of returning (& satisfied) customers (a bit of a contradiction but true).
4. People like to use different platforms for different tasks (LinkedIn for work, Facebook for communicating with friends and dating sites for dating)
5. The network effect
6. Every Jew knows about JDate
This is what my friends have told me of course. I personally, despite being Jewish, have never used it....
Literally every Jewish person in NYC I know uses or has used JDate until they got married.
The chocolate metaphor was a good one - Hershey's is not the best chocolate, they don't have innovative flavors. But you can't displace them even though Cadbury, et al, are better.
I have more faith in JDate than twitter.
I have no opinion on Tilson's idea, however, your friend raises some interesting points, specifically using a mobile app as a means to find dates within a certain vicinity.
While I believe this app, called One, is still in development, something like this might be what your friend is talking about.
This app could be used for things totally unrelated to dating, but similar apps could be utilized to tell a "sex starved Jewish computer science undergrad" at an event or location that the girl/guy five feet away is Jewish and has similar interests (i.e. Dungeons and Dragons, short-selling, accounting fraud, bushwalking).
I don't want to be seen as promoting this, it'll probably fail. However, it is interesting and something like this could pose a threat to J-Date and social networking or dating services.
Hambly Investors makes the best point - network effect. While it is true dating sites have to cycle through newly single people all the time, they still have a critical mass of people at any one time and I don't think that goes away necessarily.
That said, looking at LOV's financials, it doesn't look like the company is that successful anyways. They consistently lose money, have negative FCF, etc. So not sure I understand how this company looks like a good investment anyways. I personally think while IAC is pretty inept in general, the one thing they've done well is Match.com.
i wouldn't go near it
this industry is disrupting at an incredible pace and every model is scalable across regions and ethnicities
i also tried many online sites and jdate was the most out of date and the most expensive
yes there's a jewish following that started in the 1990s but that doesn't mean that people will remain price and user experience insensitive forever
can't speak to how it would be valued in a buy-out for instance for someone who wanted the eyeballs and the name -- that's the strike against the short thesis for me
best of luck
I'd totally endorse Elliot's comments.
The key market for JDats is not SSJCSUs, and in fact I'd be amazed if SSJCSUs are a significant user demographic.
The main market is people 30+, who use it to meet (and date) within their community but outside their immediate social circle. (And I can say this because many years ago I was a subscriber.)
Notably, you somewhat allude to this in your post where you note that "mums buy their daughters subscriptions". Remember, the customer is not the user, it is the person who pays.
I (obviously) don't have their user data, but would be willing to bet that some 70% to 80% of their revenues come from a very limited geographic base (say NYC, BOS, LA, and Israel) ... all hubs of single working Jews - many of whom are not particularly tech geeks.
- JDate has been The online destination for Jewish dating for over a decade. Many competitors have tried to enter the space, none have succeeded (but that doesnt mean it cannot happen)
- Here is a list of competitors, all are a fraction of JDate's size:
- Facebook was going to be the next online dating killer but we are still waiting for that. Even Zoosk, the most successful FB app for dating hasnt managed to break JDate's grip on the Jewish dating market. Another, Tribester, that caters to Jewish dating through FB has had a few false starts. None of the other online dating sites seem to have been hindered by Zoosk or FB (Match.com is still growing at 10-20% a year, etc.). Overall, the online dating space is growing nicely with different venues/products for different people - there is space for everyone.
- The Jewish dating market is not big enough to make it attractive. JDate 'only' makes $25-30mm of revenue a year and profitability is ~20% of that (the margins are actually really good but corporate overhead reduces them to ~20%). Somebody will need to spend a lot more than that in advertising/etc. to beat JDate without a guarantee of success.
- JDate has a lock on the two important Jewish dating markets in the US: New York and L.A.; any competitor will need to dominate these two markets.
- Believe it or not, the dating demographic is not only 20 year-olds. I dont remember the specific stats but I do remember that a substantial percentage of JDate members were in their 30s, 40s and 50s.
- JDate is not standing still. They already launched an app and are keeping up with technology. The blog post is assuming they stand still.
- JDate has built relationships with Rabbis and congregations. They are happy to push JDate in their communities. They are applying the same strategy in Christian communities with ChristianMingle.com
- the thesis of the blog post is that some horny Jewish guy is going to come up with a better mousetrap. Nobody has managed in the last decade.
- The one fear is that a kid is going to build a better mousetrap for free and that it catches on. For it to catch on it has to deliver a better value otherwise why would people switch? The resources needed to make a better mousetrap are not worth the final prize.
The other commenters have good points about JDate, especially about its being more for 30+ daters than 20 somethings. I add to that two more thoughts. One, they is often a cultural bias in jewish themed things towards not being on the cutting edge: this is an ancient culture (though highly changed over the centuries) and Jewishness and worrying about being cutting edge aren't commonly associated. Two, a huge part of the value is, as others have said, simply getting Jewish people to date outside their social circles. JDate allows singles to date Jews outside of their particular stream of judaism.
Basically, once you have a product that helps Jews date each other, what is the big improvement that makes for a better business model?
JDate has a first mover advantage leading to network effects that give it a long-lasting advantage. As long as they stay within a reasonable distance of the competition (which they can do by copying other's advances), they should be able to stick around.
Sure, there is a risk that they are overwhelmed by a technological change that makes them totally irrelevant, but that's a risk for any tech company, even Amazon/Google.
So perhaps hedge with a minor investment in those researching mind reading or genetic compatibility tests? :)
The business model of "hooking up ppl" is an almost forever model. In addition a paying customer vs. a free service have really different target audiences. If you want to find a significant other, you will pay $20 and not bat an eye. It isn't a cost question, it is how big is the pool and how successful is the hit rate.
If you go the conventional route, a person goes to the bar and tries to hook up with a random partner. If that is your goal, you go to the bar with the most people and you talk to the most partners you possibly can to increase your odds of hooking up. You don't find the quietest bar and then sit in a corner of the bar all night and then wonder why you don't hook up
what i don't understand is why someone would go sample the #2 dating site? If i wanted to find a jewish companion, i would go to the #1 website. There is no point to consider the #2, or facebook or whatever. If i didn't care about the ethnicity of the person, then i would go to eharmony or match.com, but if i wanted to meet a specific type of person that there would be only 1 sample site.
I love how the person with 20 friends says "non of me and my friends go on a dating website". No kidding, you have 20 friends, obviously meeting people isn't a challenge. Throw in a divorce, kids, 70+ hour a week job and boom, you don't have 20 friends and you don't have a date either.
Meeting people is an art for the ages and once you have a successful date from a website you will come back, if required. Simple if the network is there, you won't leave.
Now does this mean that their other services are as successful. Christian mingle has a larger target audience, but that means more competition as well. In addition their financials are not good, so that increases the risk to the entire organization and the investment. But people are looking at the wrong thing, the really consideration is if they can grow their business on other platforms, that is more important. No growth, no money to be made. If this was a private investment great to have the one asset, but all new investors need the full growth to make money and that is much less clear.
It looks like LOV is pouring money into their ChristianMingle site to grow subscribers, whereas J-Date is a small, steady, profitable business. I think the fate of LOV as an investment depends more on how they do with ChristianMingle than potential disruptions to J-Date.
Wastn't this a large Absolute Capital Management position?
I love that "SSJCSU" is a thing now.
This post is on front page of google results for that six-letter acronym.
I will probably get slammed for being indelicate, but here goes: SSJCSUs are not a threat, because the sex-starved Jewish undergrads are not discriminating on the basis of religion. They want to get laid and certainly don't want to restrict their choices to the Jewish community. If they direct their horny efforts to anything, it will be to broaden the circle of potential short-term partners, and by casting as wide a net as possible.
After their undergrad years, after they've scared their mothers with some shiksas, after they've got a job and no longer have the time to keep broadening their circles, when the prodigious output of these sex-starved undergrads has already been focussed elsewhere and they're making money - well, THEN, their mother will buy them a jdate subscription.
Or to put it more succinctly: I don't know any SSJCSUs (nor their equivalents in previous generations) who are that picky about religion when it's not about marriage or children. Religious selectivity comes later in life.
And at that point, they're very unlikely to worry about a platform that makes a decent living for providing a decent service.
Which jdate seems to be, and not much more than that.
Not likely. Spark also pads it's share with JewishMingle and another which are the respective 2nd and 3rd. This co. is a buyout target for Match.com - just wait!
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