2023-11-14 03:39:20 ET
Summary
- Match Group's Q3 showed a continued turnaround at Tinder, as the company better monetizes its user base.
- Hinge, meanwhile, continues to be a growth driver as it expands to more countries.
- MTCH's Q4 revenue guidance was disappointing, mainly due to currency, but its core business remains solid with a strong strategy at Tinder and continued growth from Hinge.
Match Group ( MTCH ) shares have struggled since I upgraded the stock to “Buy” in August . With the company recently reporting its Q3 results, let’s take a closer look at the name.
Company Profile
As a quick reminder, MTCH owns a variety of online dating sites including Tinder, which is its largest brand. It also owns the fast-growing Hinge, which is popular in Europe.
While profiles can typically be created for free, the company collects revenue through subscriptions for advanced features, while many of its sites also have pay-per-use features. The company also generates revenue from advertising as well.
Q3 Results
For Q3, MTCH saw its revenue grow 9%, and 9% on a constant currency basis, to $881.6 million. That topped analyst expectations of $880.5 million. Direct revenue rose 9% to $866.9 million, while indirect revenue rose 3% to $14.8 million.
Adjusted operating income jumped 17% to $333 million, while adjusted operating margin climbed to around 38%, up from 35%.
The number of paying users declined by -5% to 15.7 million. Revenue per paying user, however, rose 15% to $18.39.
Turning to individual segments, Tinder saw its revenue climb 11% to $508.5 million from $460.2 million a year ago. Tinder paying users declined -6% to 10.4 million users, while revenue per user rose 18% to $16.28.
Hinge, meanwhile, continues to show great growth, with revenue soaring 44% to $107.3 million. The app saw a 33% increase in paying users to 1.3 million, while revenue per paying user rose 8% to nearly $27. The growth at Hinge has just continued to accelerate. The app continues to perform well in English-speaking markets and has gained a lot of traction in Nordic and a few select other European countries.
MTCH's Asian segment continues to be a drag, with revenue down -5% to $76.8 million. Paying users fell -2%, while revenue per user fell -4% to $14.60. Azar was once again a bright spot in the segment, with revenue up 20%, as its AI matching algorithm continues to drive engagement and monetization.
MTCH's Evergreen & Emerging segment, meanwhile, saw its revenue decline by -3% to $174.2 million. The company said its new Archer app was gaining traction.
The quarter itself for MTCH was quite strong. The company is losing some paying users at Tinder as it implements its price optimization initiatives, but this is leading to much higher revenue per user and overall revenue growth. These Tinder sub-losses should start to flat line over time.
Meanwhile, Hinge continues to be a strong growth driver, as the dating app expands into non-English-speaking markets. The app is still in its early days of monetization and expansion, so it should be a solid growth driver moving forward.
Outlook
Looking ahead, MTCH guided for Q4 revenue of between $855-865 million, representing 9-10% growth. The forecast assumes $27 million more in Q4 currency headwinds than it assumed last quarter, as well as the risk of $7 million in revenue from Israel. It also said it expects about $3 million less in ad sales. At the time, analysts were looking for revenue of $893.8 million.
It is forecasting an adjusted operating income of between $305-310 million.
For Tinder, the company is projecting revenue to grow about 11% in Q4. It expects paying users to decline by about 200,000 sequentially and for revenue per user to increase year over year but less than Q3.
For Hinge, the company is looking for revenue growth to continue to accelerate in Q4 and to reach $400 million for the year.
For its Asian segment, it forecast that revenue would decline to mid-single digits, while it expects a similar revenue decline for its Emerging and Evergreen segments.
For 2024, the company said it expects to see 10% growth early in the year.
In a letter to shareholders , CEO Bernard Kim wrote:
“Given our strong team and the execution and revenue momentum we’ve built in the back half of ’23, we expect to enter ’24 continuing to deliver 10%+ Y/Y Total Revenue growth. The most critical component to maintaining that level of revenue growth for the full year will be the ability of Tinder’s ongoing marketing and product initiatives to deliver as the impacts of the ’23 optimizations anniversary. We currently believe the most likely outcome is for full year ‘24 Y/Y Total Revenue growth in the high-single-digits (inclusive of an assumed two-point FX headwind), but we want to allow Tinder’s execution momentum to build for another quarter and macro conditions to clarify before further pinpointing our full year outlook. We expect Y/Y Tinder Direct Revenue growth in line with that of the total Company through a combination of RPP growth and improving Y/Y Payer growth over the course of '24 as the ‘23 price optimizations anniversary and momentum builds from product and marketing initiatives. We expect the non-Tinder brands collectively to deliver high-single-digit Y/Y Direct Revenue growth in ‘24. We expect Hinge to continue to focus on expansion in Europe and to deliver similar Y/Y Direct Revenue growth rates in ‘24 as in ’23. “
While the Q4 Guidance for MTCH was disappointing, much of that appears to be currency-related, as well as an impact from the war in Israel. It looks like the company is also being a little conservative given the macro backdrop.
However, its core business still looks solid, as it appears its strategy at Tinder is working. These will still be some sub-losses, but it is doing a much better job of monetizing its user base. Meanwhile, Hinge continues to be a growth driver, and there is still plenty of runway for the brand, as MTCH continues to expand the app into other European countries and introduce new monetization around the brand.
Valuation
MTCH trades around 9.3x the 2023 consensus adjusted EBITDA of $1.21 billion and 8.6x the 2024 consensus of $1.32 billion.
It trades at a forward PE of 10.7x the 2023 consensus of $2.78. Based on 2024 analyst estimates of $3.16, it trades at 9.4x.
MTCH is projected to grow its revenue by 5.4% in 2023 and over 8% in 2024.
Its closest peer is Bumble ( BMBL ), which trades at 10.7x 2023 EBITDA estimates, but is projecting much higher revenue growth of nearly 17% this year.
Overall, MTCH’s valuation looks very attractive, given projected high-single digit revenue growth next year. It also has an attractive free cash flow yield of over 9%.
Conclusion
Overall, the MTCH story appears to remain on track, and I’m not going to hold currency headwinds against the company. Of course, the market right now is not very patient towards most stocks and is in a shoot now, ask questions later type of mood.
As such, I think the sell-off represents a strong entry point for the stock. The Tinder turnaround looks like it is working, and Hinge remains a growth driver. I’m going to adjust my price target slightly lower given some potential macro headwinds from $60 to $56, which is still 14x multiple of 2024 EBITDA. My “Buy” rating remains unchanged.
For further details see:
Match Group: Sell-Off Looks Overdone