How The Owner Of JDate And Christian Mingle Lost At The Business Of Love

Spark Networks, owner of JDate, Christian Mingle, and other dating websites, is facing a fierce activist campaign by the hedge fund Osmium Partners, which is looking to unseat the board and force a sale of the troubled company.

If love is a battlefield, then Spark Networks, owner of JDate, Christian Mingle, and a handful of other niche dating sites, is about to get its heart broken.

Osmium Partners is almost certain to win the four board seats it is gunning for when Spark holds its annual shareholder meeting next week, sources familiar with the situation said, allowing the activist hedge fund to take control and force a sale of the company. Originally scheduled for June 17, Spark has already delayed the annual meeting until June 28, a move these sources said is aimed at buying Spark more time to rally shareholders to vote down Osmium’s proposal or preempt a forced sale by securing its own buyout offer.

A representative for Spark, which trades under the “LOV” stock ticker, declined to comment beyond citing the company’s public filings.

Osmium, which owns 15% of Spark, launched its proxy battle in December 2013, citing what it claims are Spark’s poor corporate governance, compensation concerns, and declining stock price. The hedge fund also alleges that Spark has mismanaged JDate, its “crown jewel,” and that its Christian networks have been underperforming relative to their online dating peers.

At a per share price of around $5, a nearly 50% decline in less than a year, the market and shareholders appear to have fallen out of love with “LOV.” As Osmium waits to see whether voters will think its four board nominees are a match, here’s a look at some of the hedge fund’s other gripes with Spark, based on a presentation it gave to shareholders in May:

Osmium Partners

A lack of rebranding and poor marketing strategy.


Osmium said in its presentation that Spark has failed to rebrand JDate, which, along with Christian Mingle, has accounted for 95% of the company’s revenue since its inception 17 years ago. Spark only got around to rebranding JDate in this year’s first quarter, and its Chairman and CEO Greg Liberman even conceded to this failure on its first quarter 2014 earnings call, where it reported its slowest subscriber numbers since 2006.

What’s more, the marketing of the JDate rebranding, and for Christian Mingle, has fallen short and the company’s spending on these endeavors has had dire repercussions, according to Osmium.

“Spark’s ‘media strategy’ is an unproven and immaterial distraction from the Company’s core, high-margin paid dating business,” Osmium wrote in its presentation. “These distractions outside the scalable core business have led to $29.4 million in fixed overhead supported by just $69 million in revenue. [This] has resulted in Spark generating revenue per employee that is 71% lower than competitors Match.com, eHarmony and Zoosk.”

Failure to innovate.


Osmium also claims that Spark has failed to innovate and stay competitive through the creation of “add-ons,” or features beyond the traditional dating site services of profile creation and access to a database. The hedge funded cited HowAboutWe for Couples and “featured profiles” on OKCupid and eHarmony as examples of brand add-ons that have strengthened profitability at these sites.

Management that is “pleased” with poor results.


Despite earnings misses and a declining stock price, Osmium contends that Spark’s management is delusional when it comes to the company’s financials.

“We believe Mr. Liberman has used the word ‘pleased’ no fewer than 20 times on earnings calls describing the company’s results over the last eight quarters,” Osmium’s presentation states. “Over this time period, the Company has generated over $32 million in net LOSSES — 30% of the current market cap.”

Spark management is also not putting its money where its mouth is when it comes to investing in the company.

“Management and Board have limited capital at risk in outright stock ownership,” Osmium stated. “Excluding stock options they received at no true cost to themselves, management and the Board collectively own just 0.2% of the Company.”

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