The Edinburgh-based group made an adjusted pre-tax loss of £2.8 million in 2013, a year marked by allegations that it duped customers by putting fake profiles on its websites. New leadership was also brought in following the decision to offload “casual” dating sites such as BeNaughty and Flirt.
Chief executive Phil Gripton – who replaced co-founder Bill Dobbie at the beginning of December – said the company reached “an inflection point” in 2013, but is now set for profitable growth. “We are turning around and implanting solid foundations to our core dating division, transforming it into a sustainable, high-quality, customer-centric business,” he said. “This solid foundation will in turn underpin an exciting high growth data-driven future.”
But investors appeared to pay more heed to Gripton’s later warning that although early signs were positive, there remain “ongoing challenges that we are addressing”. The shares slumped almost 15 per cent or 10.25p to close at 59.25p.
Analysts at Peel Hunt also picked up on the risks in this “significant repositioning. The aim is to create a higher-quality and more focused online business, but the challenges should not be underestimated,” they wrote in a note.
Last year’s losses compare to a profit of £4.2m in 2012. Sales from continuing operations – the more traditional dating sites such as Cupid.com and Uniform Dating – were flat at £26.6m.
Cupid sold its casual dating business in a £45.1m deal last July to Grendall, an investment firm registered in the British Virgin Islands and managed by Cupid co-founder Max Polyakov. The deal will provide £26m in cash to Cupid over the next three years.
At that time, the company noted that casual market consumers increasingly required “more adult-oriented content”, a route that Cupid did not wish to pursue. It reiterated this stance again today. “We had increasingly viewed the casual products as a complex portfolio of assets characterised by non-differentiated, circular revenue streams that were very short-term in nature,” Cupid said.
“These were becoming less attractive in the medium and long-term and the board concluded that this was an inappropriate direction for a listed company.”
Top-line growth in the casual dating business masked an increasing “churn” rate, Cupid said, as well as a deteriorating pace in converting registered users into paying subscribers.
In the first half of last year, only 2.2 per cent of the 12 million registrations across all of Cupid’s websites converted to paid subscriptions.
By the end of the year – some five months after the sale of the casual dating sites – the conversion rate had increased to 3.1 per cent of the company’s remaining four million registered users. Meanwhile, the churn ratio of cancelled subscriptions to total subscribers fell from 44 per cent in the first half to 33 per cent in the second.
In the wake of reorganisation, Cupid now employs 225 people at operations in the UK, France, Ukraine and the United States.