Knobias Clip Report (11-02-2007)

Submitted By Knobias ClipReport

LOV: Investors 'Love' the Latest Earnings Report

Friday’s session saw subprime headlines emerge again causing financial stocks to continue their slide following the Fed’s announcement on Wednesday. Merrill Lynch and Washington Mutual led the way down as Merrill was the subject of a Wall Street Journal report noting the firm had engaged in deals with hedge funds to delay recording the losses on risky mortgage backed securities. It was noted that the SEC had begun a probe looking at how all Wall Street firms were valuing mortgage securities.

Washington Mutual saw shares slide following a suit filed against First American Corp by the NY Attorney General accusing the firm of colluding with Washington Mutual in inflating the appraisal value of homes.

Citigroup was also rumored to have set up emergency board meetings for this weekend to discuss possible additional writedowns or the dismissal of CEO, Chuck Prince.

It seems the subprime fiasco is beginning to completely unfold and display some of the largest losers who are grasping at possibly unlawful activities to soften the blow from mistakes made by the risk managers in the firms.

In any event, earnings were still the name of the game in the small cap space with one in particular displaying some impressive growth. Spark Networks, Inc. (LOV) is a provider of online personals services in the US and internationally. The Company sites include: AmericanSingles.com, BBWPersonalsPlus.com, BlackSingles.com, CatholicMingle.com, ChristianMingle.com, CollegeLuv.com, Cupid.co.il, Date.ca, HurryDate.com, JDate.com, LDSMingle.com, and PrimeSingles.net.

Internet dating and networking has become a huge business with many different names popping up on the landscape trying to grab their piece of the electronic pie. Spark Networks has differentiated itself from the others by creating niche sites that cater to those with similar characteristics. The Company began its business with JDate.com. It has now become the leading online personals website amongst Jewish singles. Expanding on the niche business model, BlackSingles, ChristianMingle, and CatholicMingle have all had similar success.

The Company also differentiates itself by requiring members to fill out extensive profiles which allow each member to screen potential dates before meeting them. This screening provides time saving and the increased likelihood of successful matches.

On Thursday, the Company released their third quarter numbers which displayed some significant growth. Contribution, which is defined as net revenue minus direct marketing, reached an all time high of $11.69M versus $11.6M. Net income for the third quarter of 2007 was $2.0 million, or $0.07 per share, compared to $2.8 million, or $0.09 per share, for the third quarter of 2006. The decrease in net income was due to $1.1 million in costs associated with the Company's Scheme of Arrangement and its first year implementation of SOX compliance during the third quarter of 2007, versus no such costs in the same period last year. Excluding Scheme and SOX costs, net income for the quarter increased to $3.1 million or $0.11 per share. Also contributing to the increased net income per share was the Company’s share buyback. During the quarter, the Company purchased approximately 4.1 million shares for $17.4 million, and since the program’s inception in November, they have repurchased 15% of their outstanding shares.

With organic growth and a strong balance sheet, as well as the already displayed ability to increase cash flow from operations, the name is certainly one to follow over the coming months. Investors would be wise to watch.



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