There's Only One Reason to Buy Quepasa Now

Ay caramba, Quepasa (ASE: QPSA) !

The company behind its namesake social-networking site for Latinos turned out a horrendous quarter last night. Revenue grew 59% year over year to $1.8 million, but it was actually a problematic 17% decline sequentially.

How can this be? The company has spent most of this year building up the fruits of its social-gaming releases and acquisitions, yet its casual diversions were good for only $219,000 in revenue. This isn't a model. It's a pair of Tesla Roadsters!

It doesn't get any prettier on the bottom line, where Quepasa's net loss widened to $2.3 million. Maybe it's just me, but I don't like to see companies post deficits that are larger than revenue.

Quepasa added 4.6 million registered users to Quepasa.com, but it's important to point out that the site's total user base of 38.2 million is a cumulative figure. Only a sliver of the folks who registered for the site still use it, and it's getting worse. What does it tell you when the company brags about its engagement metrics but revenue slips sequentially? After several quarters of publishing the total number of page views it served, it sheepishly abandoned that practice this time around. What does that tell you?

I've knocked Rediff.com's (NAS: REDF) valuation, arguing that the Indian online portal isn't worth much as a profitless company generating less than $2 million in monthly revenue. How can I defend Quepasa as a sequentially shrinking company that can't even drum up $2 million in profitless revenue in an entire quarter?

Social networking isn't very scintillating beyond Facebook and LinkedIn (NYS: LNKD) . We've seen AOL (NYS: AOL) and News Corp. (NAS: NWSA) practically give away social-networking websites that they acquired at nine-figure prices a few years ago.

If all of this sounds gloomy, there's still one reason to warm up to Quepasa. Last month, Quepasa announced the acquisition of the parent company of myYearbook. The $100 million deal will find Quepasa -- a company that posted an operating loss on $6.1 million in revenue last year -- joining forces with a company that generated $4.9 million in EBITDA on $23.7 million in revenue.

It will be a dramatically accretive deal for Quepasa, as long as the myYearbook family doesn't get cold feet. This is the kind of quarterly report that may leave myYearbook wondering whether it's making a mistake if the deal closes by year's end, but it's not as if the current volatile market will warm up to a second-tier social site trying to go public on its own.

Quepasa and myYearbook need each other right now more than they did last month. I look forward to what the combined companies' reports will look like next year.

Is Quepasa going to be able to pull off its merger with myYearbook? Share your thoughts in the comments box below, and add Quepasa to My Watchlist to stay on top of its transformative merger.

At the time thisarticle was published The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Longtime Fool contributor Rick Munarriz is Hispanic, but he still isn't drawn to Quepasa.com as a social-networking site. He owns none of the stocks in this story and is also part of the Rule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has adisclosure policy.

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