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The Business

Easydate (EZD) is London’s only listed firm to be a pure play on the fast growing online dating sector. Founded in 2005 by current directors Bill Dobbie and Max Polyakov, the Edinburgh-based business joined AIM in June this year, raising GBP8.8 million net. As its name suggests, the firm hopes to make the process of finding that special someone easier by enabling people to interact with each other online through its portfolio of around 16 specialist websites. Each website focuses on a specific niche and some of the more popular include:

www.cupid.com – A portal promoted in the UK, the US and internationally, with an emphasis on meeting local partners for friendship and romance.

www.girlsdateforfree.com – A more lively and sociable dating site which offers free subscriptions for females, promoted primarily in the UK to date, but set for introduction in other English-speaking territories in 2010.

www.maturedating.co.uk – A friendly dating environment for more mature (typically aged 40 and over) UK singles.

www.benaughty.com – A dating site promoted in the UK and abroad for those that prefer to chat, flirt, and engage in a “more casual” dating experience.

Easydate has expanded rapidly in the past three years both organically and by acquisition. Notable deals include the March 2008 takeover of www.speeddater.com and the March 2010 purchase of Allegran, which operated the Daily Mail’s online dating business.

Across its sites, Easydate has built up a base of over 13 million registrants and over 9 million members in 29 countries around the world. Revenues are primarily gained via subscription fees, with users choosing between daily, three-day, weekly, monthly, quarterly or annual subscriptions. As at 31st December 2009, Easydate had 82,000 subscribers, more than four times the 20,000 paying members on its books as at 31st January 2009. Subscribers are distinct from members in that they actually pay to use the sites rather than having a free membership with limited features. A minority of revenues are gained via advertising and marketing services and infrastructure outsourcing.

Current Trading

Easydate’s first results as a public company covered trading in the six months to 30th June 2010. Driven by organic growth and contributions from the March acquisition of Allegran, revenues in the half were GBP8.8 million, GBP0.3 million higher than were posted in the whole of the 2009 financial year. Compared to full year 2009, EBITDA was twice as high at GBP2.4 million. The firm was practically debt free at the period end and had net cash of GBP9.5 million – the GBP8.8 million IPO proceeds being received on the last day of the half.

Since the IPO in June, Easydate has kept busy on the acquisition front. In September, the firm took over PlanetSappho.com, a dating site aimed at lesb ians, for GBP200,000 and Spanish-based dating site Granamor.com for GBP25,000. The Granamor deal added over 200,000 members to the group portfolio and will be used as a platform to introduce other Easydate brands in Spanish-speaking markets. PlanetSappho had over 250,000 members spread across the US, UK, Canada, Australia, Ireland and New Zealand at the time of the deal and will be cross marketed with other sites.

Also in September, Easydate entered into an agreement with dating website Flirt.com to license the domain for an initial six months. Easydate will run the dating service across English-speaking markets with an option to acquire the domain subject to performance. In addition, the company has entered into partnerships with Associated Newspaper’s Metro newspaper and the National Magazine Company’s Cosmopolitan and Men’s
Health magazines to promote two individual dating events in London.

Along with its results Easydate announced a slightly larger acquisition, that of dating site Cupid.com for $6.6 million (GBP4.4 million). The company had operated Cupid.com outside the US and Canada under a licence from OnTargetJobs but following significant growth the firm has bought the site in order to grow the brand within the US and Canada. The deal was completed at a price of just under 9 times historic EBITDA.

In its most recent trading update, on 18th November, the firm revealed that monthly revenues for the first 9 months of 2010 had increased by 30% per quarter, and that those for Allegran were up from approximately GBP180,000 at the time of acquisition to approximately GBP420,000. Easydate also noted that, while organic growth in the UK remains strong, with monthly revenues 70% higher than at the start of 2010, an increasing proportion of revenues come from overseas. With its ongoing strategy of international expansion, 25% of total revenues now come from markets outside the UK, up from 20% in the first half of this year and 13% for the full year in 2009.

Opportunities and Threats

Long gone are the days when those seeking a lifelong companion would typically join a back street dating agency or place a lonely hearts advert in the local newspaper. This is one industry where the internet has well and truly transformed the fundamental characteristics of how things are done. While internet dating has taken some time to develop it is now seen by many as a perfectly acceptable way of looking for love.

As such, Easydate looks well positioned to take advantage of what is a rapidly growing market. As well as the removal of the social stigma, growth is being driven by trends such as individuals waiting longer to get married and high divorce rates putting more single people back on the dating market. The worldwide market for dating services is estimated to be worth in excess of $1 billion and growing in the established US market at approximately 3% per annum, in the UK at between 6% and 10% and at an even faster rate in emerging markets.

This means that there is considerable scope for organic growth to be achieved alongside the potential earnings upside from the group’s consolidation strategy. In the first half of 2010 around 20% of Easydate’s revenues were from outside the UK. With international markets having excellent growth potential, the firm is focusing on expanding this part of the business significantly. International revenues are expected to continue to rise, with the recent PlanetSappho and Granamor deals being part of this strategy.

As well as planning to make more acquisitions Easydate is also launching more products. The firm has recently introduced psychology-based matchmaking services LoveChemistry and CupidAffinity to its network. Also, websites are being integrated with social networking sites such as Facebook and applications are being developed for Apple smart phones along with other new routes to online markets.

Evaluation

Shares in Easydate have performed very well since the firm listed, with them currently changing hands at almost twice the 60p IPO placing price. On current market forecasts they trade on a rather high 2010 earnings multiple of 23.3 times, which falls to 14.2 times in 2011. But these are ratings which are perfectly acceptable for a rapidly growing company with a solid track record. In the three years to December 2009 revenues rose by a phenomenal 653%. Bottom line growth has also been good, with an operating loss of GBP1 million in 2007 being turned into a GBP1 million operating profit in the year to 31st December 2009. With a strong financial position, which puts the company in a good position to add further websites to its portfolio, we see the rapid growth continuing and as such rate the shares as a BUY.

Key Data
Epic:EZD
Market: AIM
Spread: 115p-123p