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Edited Transcript of MEET earnings conference call or presentation 7-Nov-19 1:30pm GMT

Q3 2019 Meet Group Inc Earnings Call

NEW HOPE Nov 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Meet Group Inc earnings conference call or presentation Thursday, November 7, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Geoffrey Cook

The Meet Group, Inc. - CEO & Director

* James E. Bugden

The Meet Group, Inc. - CFO

* Leslie Arena

The Meet Group, Inc. - VP of IR

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Conference Call Participants

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* Austin William Moldow

Canaccord Genuity Corp., Research Division - Associate

* Darren Aftahi

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* Jed Kelly

Oppenheimer & Co. Inc., Research Division - Director and Senior Analyst

* Michael James Latimore

Northland Capital Markets, Research Division - MD & Senior Research Analyst

* Victor B. Anthony

Aegis Capital Corporation, Research Division - MD of Internet & TMT and Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Meet Group's Third Quarter of 2019 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

Thank you. Now I would like to hand the conference over to your first speaker today, Ms. Leslie Arena, Vice President of Investor Relations. Ma'am, you may begin.

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Leslie Arena, The Meet Group, Inc. - VP of IR [2]

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Thank you. Good morning and welcome to Meet Group's Third Quarter 2019 Earnings Conference Call. With me today are Geoff Cook, our CEO; and Jim Bugden, our CFO. At the conclusion of our prepared remarks, we'll be happy to take your questions.

As a reminder, today's discussion will include statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. More information about those risks and uncertainties is contained in our SEC filings. We caution you against placing undue reliance on these statements and disclaim any intent or obligation to update them.

In addition, as we refer to earnings, we also will refer to adjusted EBITDA, which we define as earnings or loss from operations before interest expense; benefit or provision for income taxes, depreciation and amortization, stock-based compensation, nonrecurring acquisition, restructuring or other expenses; gain or loss on disposal of assets; gain or loss on foreign currency transactions; bad debt expense outside the normal range; goodwill and long-lived asset impairment charges.

We also refer to free cash flow, which we define as net cash provided by or used in our operating activities minus purchases of property and equipment, as shown in our consolidated statements of free cash flow. Adjusted EBITDA and free cash flow are non-GAAP financial measures, and you can find a reconciliation to GAAP in our earnings release, which is posted on the IR section of our website. We believe that use of these measures provides additional insight for investors to use in evaluation of operating results and trends. However, they should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP.

I would now like to turn the call over to Geoff.

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [3]

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Good morning, and thank you for joining us on the call. We had a strong third quarter. Enabled by our product strategy and execution, we grew revenue 15% year-over-year to $52.6 million and adjusted EBITDA to $11 million, an increase of 27% from last year's third quarter. Both revenue and adjusted EBITDA exceed the prereleased estimates we issued on October 3.

We grew video revenue for the quarter by approximately 85% year-over-year to $20.3 million. The fourth quarter is off to a good start with video revenue on our MeetMe app in October, for instance, growing to the highest level of any month since May. Total video revenue in October exceeded video revenue in every month of the third quarter. Furthermore, the company expects November and December video revenue to continue to increase from October. We expect video revenue in the fourth quarter to grow 10% to 16% versus the third quarter to $22.4 million to $23.7 million on continued momentum growing users and engagement.

As I've discussed on previous calls, we believe there are 2 key metrics that drive video revenue: Average video revenue per daily active video user, or vARPDAU; and the number of daily active users engaged in video, or vDAU. In the third quarter, the vARPDAU increased to $0.27, up from $0.14 a year ago and $0.26 sequentially. vDAU in the third quarter was 829,000 or 20% of our mobile DAU, reflecting a small decline, as expected, from 21% in the second quarter as users adopted to our tightened moderation standards.

We expect vDAU to return to growth in Q4 based in part on the strength of our launch of NextDate, a livestreaming dating game. While early, we are seeing an approximately 20% increase in vDAU in English-speaking audience on MeetMe and Skout since the rollout of NextDate. We expect to achieve 25% vDAU across the portfolio by the end of the first quarter, with NextDate targeted to roll out to Tagged and LOVOO in January and with additional vDAU-enhancing initiatives.

Advertising results for the quarter were solid, with mobile advertising revenue which today comprises of approximately 90% of total ad revenue, growing 6% year-over-year, our first quarter of year-over-year mobile ad growth since the first quarter of 2017. We believe these results set the stage for positive momentum in the fourth quarter and also 2020.

The economics of the business are strong. We generated a record-high quarterly free cash flow of $12 million in the third quarter, and we generated more than $25 million for the 9 months ended September 30. That financial strength has enabled us to return value to shareholders in the form of share repurchases. In the third quarter, we directed 100% of our free cash flow toward repurchases. Since authorizing a $30 million share repurchase plan in June, we have bought back $17.7 million, or 4.8 million shares, through November 5. And we expect to continue to purchase shares pursuant to our share repurchase program.

At the start of 2019, we set forth our strategic priorities for the year: One, to invest in our core business; two, to expand into adjacencies; and three, to grow margin. I will now discuss our progress toward each of these goals.

We continued to invest in our core video business in the third quarter. We launched Streamer Levels on MeetMe, Skout and Tagged, adding a gamification element to live video. As live streamers grow their audience, stream more frequently and produce compelling content, they can earn streamer points and progress through the ranks, unlocking new tools and bonuses available only to streamers of that level. We believe Streamer Levels has increased gifting, and we expect to bring a similar progression system to viewers in the coming months. Similar to Streamer Levels, we expect Viewer Levels to contribute to rising video engagement and monetization.

In July, we launched one-on-one live video on our MeetMe app, and in September, we brought it to Skout. One-on-one video provides a richer format to get to know someone than on text-based chat. And we are already seeing tens of thousands of users accessing one-on-one video every day. Users may only engage in a one-on-one chat with either one of their existing text chat partners or with one of their dates from our new NextDate feature.

NextDate is our most recent major product launch. NextDate allows any user to be the star of their own live streaming dating game. Launched in beta in early October, users have taken to the game. Any streamer can initiate a NextDate game by tapping on the heart icon while they stream. Once initiated, the streamer's viewers can queue up to have a video chat with the streamer. The streamer has 90 seconds to tap Next, which ends the current pairing and skips to the next contestant in the queue; or Date, which reciprocates the contestant's interest and enables the 2 users to connect by one-on-one video chat in the future.

NextDate provides hundreds of prompts to help the streamer get to know the contestant, evaluate their compatibility and keep the conversation going. The launch also includes a new Date tab within the Live section to make it easy to find nearby and trending people playing the game and to filter by age, gender and location. The game is monetized today via the same virtual gifting engine that has enabled us to grow Live to an $80 million annualized video business within about 2 years.

We built NextDate because our biggest user segment has always been and continues to be people interested in dating. NextDate's role is to attract these users into our livestreaming platform and grow vDAU by enabling them to use livestreaming to date. NextDate is currently available in English on MeetMe and Skout, and we expect it to launch on Tagged and LOVOO in January. Over time, we expect to enhance the game with a blind date capability, to add a method of monetization for users who wish to skip the line and to experiment with scheduled NextDate special events to maximize geographic density and matching.

Investing in our core also means continuing to invest in safety across our apps. In the third quarter, we implemented numerous enhancements to our safety processes and safety-related product features, and we expect to end the year 2019 with approximately 55% of our workforce dedicated to safety and moderation. Our #1 priority is and will always be to provide a safe environment for our millions of users to interact and connect. And we work continuously to advance these efforts through strict usage and content policies; advanced machine learning algorithms; and a large, well-trained moderation workforce. We believe that our safety-related enhancements contributed to a 2% decline in DAU versus Q2.

While combined, MeetMe, Skout, Tagged DAU was up slightly, LOVOO DAU fell as we standardized our policies to match the stricter standard of the U.S. brands. We remain focused on growing DAU both at LOVOO, where we recently launched more robust personalized profiles to help improve the core dating experience; and on our U.S. brands; as well within video, in which we have been experimenting with viral Snapchat sharing flows. We expect to continue to dedicate resources to initiatives aimed at lifting retention and engagement outside of video with the goal of driving total DAU across the portfolio. In 2020, we expect to shift more dollars to influencer marketing, including in support of NextDate as we see attractive opportunities and a positive return on our marketing investment.

Our second priority, expanding into adjacencies, is about bringing new audiences to our platform. As I previously discussed, we believe that there are opportunities to video-enable third-party apps in ways other than acquiring them, by building a Video Platform as a Service product, which we call VPaaS, in which we provide the proven technology, moderation systems, talent management and the pool of talented streamers we've already developed over the past 2 years.

We've now completed the necessary engineering enhancements to enable the Video Platform as a Service approach, and we expect to begin testing the product on a commercial basis in the fourth quarter. We believe VPaaS has the potential to evolve into a material business in 2020 and beyond. We also expect to video-enable our latest acquisition, Growlr, in the first quarter of 2020, a change from previous expectation of the fourth quarter as we dedicated more of our resources to VPaaS.

Our third priority is to grow margins. In the third quarter, we increased adjusted EBITDA margins to 21%, up from 19% year-over-year and sequentially. It's early, but we are beginning to realize expense savings by providing users with choice in how they access Live and how they purchase credits for gifting.

Web Live provides users with the same experience as mobile but also includes audio and visual tools unavailable on a mobile phone. When users choose to access Live on web, we incur lower payment processing fees, thereby improving our video margin. Web Live is currently available on MeetMe, and we expect to bring it to Skout in the first quarter. We expect to offer a broader range of alternative payment methods across our portfolio by the first quarter of 2020.

In summary, we have a growing, profitable business that we've achieved by executing against a singular vision that live interaction will become increasingly important to meeting new people and to dating. In live video, we've leveraged our strong community and high engagement to create a significant content business from scratch. Our team has proven itself capable of building bold, innovative products like livestreaming and VPaaS, while at the same time, executing organizationally by acquiring 4 companies in 3 years.

We believe we are at the early stages of building the future of meeting new people, and we plan to share more of that vision with you in the coming months as we unveil our plans for 2020 and beyond. We appreciate the trust that our investors have placed in us over the years, and we are pleased to be in a position to return value to shareholders in the form of significant share repurchases. We look forward to continuing to execute on our mission to build the best place to meet new people.

With that, I'll now pass the call to Jim.

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James E. Bugden, The Meet Group, Inc. - CFO [4]

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Thanks, Geoff. Before reviewing our results, and similar to last quarter, I'll note that with the exception of Growlr, which we acquired on March 5 of this year, our results for the third quarter are on a comparable basis to those reported in the year-ago quarter.

We reported a strong quarter and continued to strengthen the financial model by growing margins to over 20% and generating record free cash flow. Total revenue for the third quarter of 2019 was $52.6 million, an increase of 15% from $45.7 million in the third quarter of 2018, driven primarily by growth in user pay revenue.

User pay revenue for the third quarter of 2019 was $35.9 million, up 28% from $28.1 million in the third quarter of 2018, due largely to the rapid growth of video revenue. Video revenue was $20.3 million, an increase of 85% from $11 million in the third quarter of 2018. For the third quarter of 2019, ad revenue was $16.8 million, down 5% year-over-year and up 11% sequentially, aided by seasonality.

It is important to note that mobile advertising revenue, which today comprises approximately 90% of ad revenue, grew 6% in the third quarter of 2019 compared to the third quarter of 2018. This is a reversal of the declining trend in mobile ad revenue that we have experienced since 2017. We believe this marks the bottom of these declines and expect mobile ad revenue to grow in the future as I will discuss in more detail when I review our guidance.

Offsetting the revenue gains in mobile advertising was the expected decline in our desktop ad and Social Theater products. We expect continued headwinds to these non-mobile products to have a lesser impact to total ad revenue as they constitute an increasingly smaller portion of our ad business.

Adjusted EBITDA for the third quarter of 2019 was $11 million, an increase of 27% from $8.7 million in the third quarter of 2018. Adjusted EBITDA margins increased to 21%, up from 19% sequentially and in the year-ago quarter as we continue to realize leverage in key expense items while growing revenue. GAAP net income for the third quarter of 2019 was $3 million or $0.04 per diluted share compared to GAAP net income of $1.3 million or $0.02 per share in the third quarter of 2018.

Moving on to expenses. Sales and marketing expense for the third quarter was $8.7 million, flat compared to the year-ago period. User acquisition spend as a percent of revenue was approximately 13.3% compared to 15.1% in the year-ago quarter and 14.2% sequentially.

Mobile DAU in the third quarter of 2019 was 4.46 million compared to 4.56 million in the second quarter of 2019, which we believe reflects safety-related actions we took in the June and July time frame. Mobile MAU was 16.5 million, an increase from 16.2 million sequentially.

Product development and content expenses for the quarter were $30.6 million, up from $26.1 million in the year-ago quarter, due largely to an increase in variable cost associated with the increase in live video revenue. As a reminder, the product and content line item includes variable costs related to payment fees to Apple, Google and other vendors, along with the rewards that we pay to streamers.

General and administrative expenses for the quarter were $5.3 million, an increase from $4.9 million a year ago due largely to an increase in bad debt associated with one account, partially offset by a decrease in employee-related expenses.

Moving to the balance sheet and cash flow. We ended the quarter with $27.5 million in cash and cash equivalents, an increase from $26.1 million sequentially. Our cash flow from operations was $12.7 million in the third quarter, and we generated $12.2 million in free cash flow for the quarter.

In September, we announced that we had signed a new debt agreement for a 3-year $60 million facility consisting of a $35 million term loan and a $25 million revolving line of credit. Our new term loan carries lower amortization and a lower rate of interest than our prior debt while increasing the allowable share repurchase amount within a year from $10 million to $30 million.

I'll now turn to our outlook for the fourth quarter of 2019. For the quarter, we expect revenue to be in the range of $56.9 million to $58.4 million and adjusted EBITDA to be in the range of $12.6 million to $13.1 million. We expect video revenue to increase sequentially to between $22.4 million to $23.7 million. And we expect advertising revenue to be approximately $20 million. We expect mobile ad revenue in the fourth quarter to increase 6% year-over-year, but for that increase to be offset by desktop ad and Social Theater headwinds, yielding an overall year-over-year fourth quarter advertising revenue decrease of 5%. We expect full year 2019 revenue to be in the range of $211 million to $212.5 million, and we expect adjusted EBITDA to be in the range of $41.5 million to $42 million.

We expect video revenue growth in the fourth quarter coming from our dating game and Levels, along with holiday seasonality, to contribute to full year video revenue of $84.2 million to $85.5 million. Revenue expectations for the full year include an expected negative $3.3 million foreign currency impact from LOVOO compared to the prior year as the euro has continued to fall into 2019. And longer term, we continue to expect to grow video revenue to a $200 million run rate by year-end 2021.

And with that, we can move to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Darren Aftahi of Roth Capital Partner.

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Darren Aftahi, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [2]

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Nice job on the quarter, especially the free cash flow. A couple of questions, if I may. On your own vDAU numbers, I know they were down sequentially, that you called out the safety-related items. I'm just kind of curious as we kind of look forward, is 3Q vDAU assumed to be kind of trough as we move forward in the future?

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [3]

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Is Q3 -- Darren, this is Geoff. Is Q3 vDAU a what?

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James E. Bugden, The Meet Group, Inc. - CFO [4]

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A trough.

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [5]

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A trough. Yes, yes. We expect vDAU in Q4 to rebound on the strength of NextDate, especially with -- we are seeing in the English-speaking markets of U.K. and in the U.S., a roughly 20% increase actually in vDAU in October versus September owing certainly in part to NextDate.

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Darren Aftahi, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [6]

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And then could you -- yes. A couple more. Geoff, you had reeled off a number of by-platform kind of impacts, I think, with Meet, Skout, Tagged and LOVOO in terms of how safety was impacting. Could you just repeat those again just so I got those clearly?

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [7]

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Yes. So as far as DAU? Well, I talked...

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Darren Aftahi, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [8]

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Yes. So you had talked...

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [9]

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Go ahead. Go ahead.

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Leslie Arena, The Meet Group, Inc. - VP of IR [10]

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Go ahead, Darren.

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Darren Aftahi, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [11]

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I think you were just talking about how each platform safety had impacted it. And it sounded like there was a little bit of a lag on LOVOO. If you could just kind of repeat those. I didn't quite catch all that.

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [12]

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Yes, sure. Yes. So my comments were MeetMe, Skout and Tagged DAU in Q3 was up slightly. The combined MeetMe, Skout, Tagged DAU was up slightly. LOVOO DAU fell, contributing to a 2% decline in DAU in the quarter. And that we attribute that to safety-related changes on LOVOO, in particular, removing 16 and 17 year old users on LOVOO to match the U.S. standard, which we did I believe in July. And we're seeing an impact to DAU as a result of that. But we believe that's a onetime impact.

LOVOO is also engaged in cleaning up spam on their platform, perceived spam users with heightened algorithmic processing. That could be having some impact as well. But in any event, we believe it's a onetime impact. And we're seeing signs of stabilization on LOVOO.

We're also planning to resource DAU-related projects in 2020, as -- we're already resourcing now, but to continue to resource them in 2020, especially projects aimed at driving marketing efficiency, a project aimed at retention and also with respect to word-of-mouth spread.

You'll note that we also expect to increase our marketing, our user acquisition spend on a total dollar basis, by 4% from Q3. That's largely as a result of increased revenue. We'll be running at the same percent of revenue spent on UA at around 13%.

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Darren Aftahi, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [13]

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Sure. Great. That's very helpful. So just 2 more, if I may. First, on your 4Q video guidance, revenue guidance. Could you just -- it's a fairly wide range. Could you just talk about some of the puts and takes there?

And then lastly, on your VPaaS initiative. I think you talked about some engineering undertakings in the quarter that's sort of ready to go. Do you have a pipeline of third-party customers that are either piloting, beta testing or actually commercially using it right now?

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James E. Bugden, The Meet Group, Inc. - CFO [14]

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Yes. Darren, it's Jim. I'll take the first part on the video guide. We expect video to grow nicely in Q4. It's up in the range between 10% and 17% to $22.4 million to $23.7 million. The big reason for -- I think for the wider range is we're coming into the seasonal holiday Q4 period. We have a lot of promotions planned. Last year was our first time through that cycle, I think we'll do more promotions this year, and we know that those had an impact, and it's leading us to just giving a wider range on where we think the quarter comes out. But in any event, it looks very -- it's off to a solid start, and we expect it to grow.

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [15]

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Yes. I'd say some of the things that we're excited about on Q4 video, NextDate, of course, growing vDAU. The Levels product continues to show some signs of momentum. And then we'll also be launching Viewer Levels as well relatively shortly. And then with respect to the holiday benefit, we saw a nice holiday.

As far as the other question with respect to the VPaaS business, we do -- we are -- we do expect to begin testing the product on a commercial basis inside of this quarter. And then we are working a pipeline of other potential partners that we'll be talking about when there's something to say.

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Operator [16]

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The next question will come from Victor Anthony of Aegis Capital.

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Victor B. Anthony, Aegis Capital Corporation, Research Division - MD of Internet & TMT and Analyst [17]

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Sorry, I'm too pressed in with the IAC ANGI call, so I apologize if any of these questions have been asked. The first one is really on, I guess, the potential for you guys to expand margins by bypassing the Android tax. Just give us an update on that if you haven't yet.

And second, Match Group announced yesterday that they were looking to enter the live video streaming. I wanted to know what sort of role you're playing with that. They're launching with 2 different partners.

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [18]

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Sure. So on the Android question. I think what we're looking at is alternative payments generally. We believe user choice is important to provide to our users and how they access Live, whether it's on the web or mobile device and also what payment method they leverage. We, of course, are very cognizant and pay attention to what industry leaders are doing, like Tinder and Bumble and others with respect to Android in particular. And there are some opportunities for improving margin with respect to alternative payments that we are pursuing and that we expect to make more progress on by Q1 of next year, where we expect to standardize our payment methods -- our alternative payment methods, across our 4 largest apps. And we think that there's some margin improvement to that.

With respect to the second question, we're not going to be commenting on this call on who we expect to work with on VPaaS other than to say, we do believe that VPaaS can be an attractive option for many potential partners. And I think you assumed where it came from. We had been working a pipeline of opportunities on the M&A front. Each of the acquisitions we made over the last 2 to 3 years were all made over the single thesis of essentially powering video for that brand.

Of course, there's some apps that we'd like to power video for, but we're either unwilling or unable to acquire. And given expanding into adjacencies, one of our main priorities for this year, we began work on this VPaaS business. We've messaged on the last call that we're building out the engineering enhancements. We've now completed that necessary engineering work to enable the Video Platform as a Service approach. And we do expect to begin testing the product on a commercial basis, as I mentioned, in the fourth quarter. And we do see revenue opportunities that could be material, at least have the potential to be material in 2020 and beyond.

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Operator [19]

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The next question will come from Mike Latimore of Northland Capital.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [20]

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You mentioned the 20% increase in, I think, vDAU for NextDate beta. How should we think about kind of monetization of that? Any kind of early signs on monetization of the service?

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [21]

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Yes. I mean, I think the way we think about the monetization is because the gift engine is roughly the same. So the rationale behind NextDate is really to leverage our largest segment of users, which are users interested in dating, and bring them into Live. Every day, our users are sending 75 million text-based chats across the portfolio. That distribution is what brings people into the app. We've built this large content business on top of that distribution. And NextDate is kind of the next play to bring incrementally more users into it based on the reason they're there, which is text-based chat and finding new people to meet.

And to the extent that -- what we found is that many of our streamers in NextDate, the vast majority of them are streaming in part because they're of course interested in other users, but in part because they see the opportunities for NextDate to increase their follower count. Once our -- once these users are following NextDate streamers, then they're getting notified every time these streamers go live, and we believe they will begin to behave like other viewers and other users of video.

And so ultimately, NextDate is about driving DAU, vDAU in particular, and that we expect vARPDAU can continue to operate effectively against these incremental NextDate vDAU.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [22]

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Got it, got it. That's great. And then I know you said this is sort of the first of its kind dating game. But any -- in some of your other video services, you have some pretty good proxies out there for success. Any kind of proxies that you might call out here in terms of this? Or is this really kind of new?

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [23]

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It's pretty new. We didn't really see anything like it. In fact, we submitted a patent on it. But in any event, yes, it's fairly new. We haven't seen anything like this in China. We haven't really seen anybody take the speed dating model, make it public and gamify it. And that's essentially what we've done with NextDate.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [24]

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Got it. And was breakage in the quarter kind of as expected?

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [25]

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Yes. As expected.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [26]

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And then just last one on the -- getting to the $200 million video run rate. Is that comment sort of an organic comment? Or does that include the potential for acquisitions?

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James E. Bugden, The Meet Group, Inc. - CFO [27]

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That's been an organic comment. We talk about how we'll get there with the users we have today, by growing vDAU percentage to 35% and vARPDAU to $0.35. We're still on the path to do that, and that is an organic, non-acquisition, non-VPaaS number.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [28]

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Non-VPaaS number, too. Okay.

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Operator [29]

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The next question is from Jed Kelly of Oppenheimer.

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Jed Kelly, Oppenheimer & Co. Inc., Research Division - Director and Senior Analyst [30]

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Great. Just back to the last one. I get how you're using NextDate to increase daily active users. But do you ever think about any strategies around it providing any immediate -- more immediate monetization? And then can you just talk about other competing platforms potentially offering livestreaming video?

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [31]

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Sure. So as far as any more immediate monetization beyond the gifting model of NextDate, we do have plans to add -- we currently have plans to add a skip the line feature into NextDate that would allow a user who wanted to go to the front of the line. Some of these lines can be 6 to 12 people deep, which would take as much as 20 minutes to get through. If you want to go to the front of that line, you'll be able to pay and that would be kind of a monetization point that's unique to NextDate.

As it relates to what other companies might be doing, and obviously, I can't comment on that. And I can't comment on this call on who we expect to work with on VPaaS either. But we expect that we'll be able to say something when the time is right.

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Jed Kelly, Oppenheimer & Co. Inc., Research Division - Director and Senior Analyst [32]

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And then it looks like you're driving nice leverage on sales and marketing and user acquisition. Can you talk about some of the key drivers there?

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [33]

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Yes. So on the sales and marketing, as far as the -- where we're spending, we're really spending on Facebook, Instagram, Snapchat. We do -- we see continued nice results on the ROI of that spend. We've been managing to increase our dollar spend incrementally while reducing our percentage of revenue spend on marketing, just given the growth in revenue. We do think that there are a number of interesting marketing opportunities to pursue in 2020 and beyond. We think NextDate opens up new avenues for us on the influencer side. We have ambitions to open up channels of marketing beyond the ones I just mentioned. And so I think we're going to be pretty active growing new users and really getting the word out about what we're doing in 2020 and beyond.

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Jed Kelly, Oppenheimer & Co. Inc., Research Division - Director and Senior Analyst [34]

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And then just one last one for me. You mentioned, I think mobile is 90% of advertising revenue, growing 6%. Is that the first time it's returned to growth? And is that a function of easier comps? Or just new ad units? And how should we expect advertising to trend into next year?

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James E. Bugden, The Meet Group, Inc. - CFO [35]

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Yes. So Q2 was actually -- or sorry, Q3, the actual, was the first growth we see -- first quarter year-over-year growth we've seen, yes, since 2017. It's a function of continued optimization of the platform. There's a return to seasonality that we've noted we've seen kind of starting last year, where every quarter of the year improves over the prior quarter where you reach a plateau in Q4. The pricing market has seemed to stabilize. And we've seen that pattern look like it did prior to 2017 when the market was disrupted.

So we have said now is Q3 was up. We're calling for Q4 mobile to be up again, that we've seen what we believe is the bottom of the ad declines and we expect growth going forward on the mobile side. As you mentioned, that's approximately 90% of the revenue today and will become an increasing part of it as it continues to grow. And then also the desktop and Social Theater products become a less -- a smaller portion of the total.

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [36]

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I would also add to that, that mobile, a big portion of that increase in year-over-year is actually a result of advertising and -- mobile advertising inside of our live video, in particular, our incented videos where users are watching videos and earning virtual currency that they can then use to give gifts. And so there's actually -- part of that success year-over-year is tied to video as well.

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Operator [37]

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(Operator Instructions) The next question is from Austin Moldow of Canaccord.

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Austin William Moldow, Canaccord Genuity Corp., Research Division - Associate [38]

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Congrats on the quarter. I wanted to dig into mobile advertising a little more. What do you feel the resilience is of that revenue, just given what happened back in 2017? What's the risk of whatever happened then happening again, do you feel?

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [39]

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I think the 2017 disruptions felt across an industry-wide CPM decline on programmatic ad markets. And I think that what we believe that was caused by was kind of a glut of supply as more -- 2016 marked a peak in CPMs, more and more publishers and app creators adding mobile advertising, leading to a glut of supply. While at the same time, more and more incremental ad dollars went to Facebook and Google, essentially a duopoly.

I think these -- we're not predicting or forecasting a return to kind of Q4 '16 CPMs, but we are seeing advertisers value our inventory. We've spent a lot of time making sure that our inventory is valuable in terms of click rates, conversion. We've done a lot with header bidding, working to get as much as half of our ad impressions through header bidding, which helps us with ad margin. And then also rolling out and substantially increasing the number of incented video advertising inside of live video. Live video is probably under-monetized today from an ad standpoint, and we've done that very much consciously given that it monetizes so well via the gifting engine. But that's something we'll likely experiment with over the course of 2020.

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James E. Bugden, The Meet Group, Inc. - CFO [40]

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Yes. Just a little more color there also on pricing. I mentioned prices have improved and stabilized. It's nowhere near the levels we saw in 2016, which -- so I think the rate of opportunity of, again, any sensitivity to that decline is much smaller now because you just don't have that push to get more people to increase the supply like we did in '16 with what were probably some unsustainable prices that were coming into the market. That doesn't -- that's not the case today.

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Austin William Moldow, Canaccord Genuity Corp., Research Division - Associate [41]

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Okay, great. That's really helpful. And has the advertising EBITDA margin been consistent? And I guess for this quarter or this year, has it been consistent with what it used to be before 2017, when you were mostly an advertising business?

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James E. Bugden, The Meet Group, Inc. - CFO [42]

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Yes. The mobile margin is consistent. There's a very -- it does not cost a significant amount to run a mobile ad. We generally think of that as near-100% margin.

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Austin William Moldow, Canaccord Genuity Corp., Research Division - Associate [43]

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And is that consistent on an EBITDA margin basis with the pre-2017 levels?

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James E. Bugden, The Meet Group, Inc. - CFO [44]

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The flow-through would be the same. So yes, we think of it the same way, that an increased dollar of advertising would have the same flow-through margin.

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Austin William Moldow, Canaccord Genuity Corp., Research Division - Associate [45]

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Okay. And what kind of margins should we -- EBITDA margins, should we expect on your VPaaS product?

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [46]

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We're not forecasting that at this time.

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Austin William Moldow, Canaccord Genuity Corp., Research Division - Associate [47]

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Okay. And just my last question is on marketing. Just given your comments on it, it seems like there will be relatively more importance put on it next year given your product opportunities. Can you comment on how you see the percent -- the marketing as a percent of revenue changing from 2019 to 2020?

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James E. Bugden, The Meet Group, Inc. - CFO [48]

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Yes. No, we haven't commented yet on -- for next year. We'll do that at the next update.

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Operator [49]

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And that concludes our Q&A session. I would now like to hand the conference back over to Ms. Arena to conclude the call.

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Leslie Arena, The Meet Group, Inc. - VP of IR [50]

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Thank you. With no more questions, we'll end the call. Thank you, everyone, for joining us today, and have a nice day.

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Operator [51]

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Ladies and gentlemen, that concludes today's conference call. Thank you for participating. You may now all disconnect.