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Seeking Alpha talks about the true value of Spark Networks:
At first glance, the stock has all the makings of a potential value play. It’s got captive audiences in a growing industry, a P/E under 10, and its net income has grown consistently..
Looks great! Unfortunately, this is exactly why investors cannot make purchase decisions “at first glance”. We’ve discussed examples here of what kinds of things get buried in the notes to the financial statements. In this case, however, the investor need not go further than the income statement.
While most companies lose 35-40% of their income to tax, Spark Networks actually gets to double its income in 2007, and pay very little tax in 2006! Clearly, this is not sustainable. A careful reading of the notes reveals this tax gain is a result of making up for past operating losses, and that a large chunk of these tax assets have now been used up.
I predict Spark will sell in 2008, but for how much? Leave your guesstimate in the comments.
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