Further, we estimate that Spark’s top 5 executives (the Company has not disclosed the compensation of its CIO/CLC since 2007) make approximately $3.5mn a year in total compensation and have collected approximately $12.3mn over the last 3.5 years. Over the same period, revenue declined from $65.2mn to $45.4mn, and enterprise value fell by approximately 70%. In 2009, the top 5 executives’ total compensation equated to 8% of sales and 35% of Adjusted EBITDA. Based on our research, calculating total compensation for only the top three executives, we believe the Spark Board has compensated management in the 92nd percentile of their peer group 1 for delivering 39th percentile returns on a one year basis. On a longer term basis, under Mr. Berger’s leadership since taking over the business in 2007, the stock price has fallen 46%.
It would appear that this management team is grossly overpaid for dramatic underperformance. At a minimum, we urge the Board to better align executive compensation with corporate performance and shareholder value creation.
As we explained in our letter dated March 9, 2010, we believe the future of online dating and Spark’s valuable brands are attractive. On July 28, 2010, the CEO of Match.com, a subsidiary of InterActiveCorp (Nasdaq: IACI), stated, “The fundamentals of the business are going really well. There are also always strategic possibilities.” JDate and the core strategic brands are growing, generating significant amounts of cash relative to the market cap. Therefore, we believe there is no need to sell the Company at this time for anything less than $6.00 per share. Publicly traded dating companies receive multiples of 11-32x Adjusted EBITDA versus our estimate of 5.9x for Spark operating at less than optimal efficiency. The Company has a strong balance sheet (10%+ of net cash to market cap), an untapped $25mn line of credit, and strong consistent cash flows. In fact, actions from both the Board and CEO suggest that they also believe the stock is deeply undervalued: