2023-08-18 16:50:07 ET
Summary
- Match Group reported solid Q2 results with revenue growth exceeding expectations.
- More importantly, Tinder appears to be stabilizing and growth is expected to start to accelerate.
- With Tinder showing signs of a turnaround, MTCH is a "Buy."
Back in June , I wrote that I needed to either see a Tinder turnaround or a cheaper price to become more interested in Match Group ( MTCH ). With the company reporting Q2 results earlier this month, let's catch up on the name.
Company Profile
As a refresher, MTCH owns a collection of online dating websites and apps. Its largest brand is Tinder, which generates over half its direct revenue. Hinge, meanwhile, is popular in Europe and has been its fastest growing property.
While users can generally create free profiles, MTCH generates revenue through subscriptions for advanced features, while many of its brands also have pay-per-use features. Advertising is another source of revenue for the company.
Q2 Results
For Q2, MTCH saw its revenue grow 4%, or 6% on a constant currency basis, to $829.6 million. That was ahead of the $811.5 million that analysts were expecting. Direct revenue rose 5%, or 6% on a constant currency basis, to $816 million, while indirect revenue fell by $1 million, or 7%, to $13 million.
Adjusted operating income rose 5% to $301 million, while adjusted operating margin stayed steady around 36%. Adjusted EPS of 48 cents topped the analyst consensus by 3 cents.
The number of paying users decline by -5% to 15.6 million. Revenue per paying user, however, rose 10%, or 12% in constant currencies, to $17.41.
Turning to individual segments, Tinder saw its revenue climb 6%, or 7% excluding FX, to $475 million from $449 million a year ago. Tinder paying users declined -4% to 10.5 million users, while revenue per user rose 10% to $15.12.
The company credited pricing optimization and new weekly subscriptions for its improved revenue despite a decline in paying users. It said that weekly subscriptions, which launched in the U.S. in Q1 and Europe and Japan in Q2, helped propel conversion, renewal rates, and resubscription rates, particularly among female users. Along these same lines, the company said its new global market campaign "It Starts with a Swipe" was also resonating with women.
In a letter to shareholders , CEO Bernard Kim said:
"Towards the end of Q1, Tinder introduced new U.S. pricing optimizations, which helped drive incremental revenue growth throughout Q2. While Payers were negatively impacted due to lower conversion, we expect the price actions to effectively maximize revenue over both the near- and long-term. We have not seen any notable ecosystem detriments, as the Payers lost generally remain active on the platform and continue to send and receive likes and messages as non-paying users."
Hinge, meanwhile, continues to show strong growth, with revenue up 35% to $90 million. The app saw a 24% increase in paying users to 1.2 million, while revenue per paying user rose 8% to slightly above $25. The growth was an acceleration from the 27% and 29% growth it saw in Q1 and Q4, respectively, and the company thinks growth will continue to accelerate with the brand on track for 40% growth in 2023. The app continues to do well in English-speaking markets, but is also quickly gaining success in new markets such as Spain, Italy, and the Netherlands.
MTCH's Asian segment continues to be a drag, with revenue down -4% to $77 million, although was an improvement from the segment's recent double-digit declines. Paying users fell -3%, while revenue per user rose 5 cents to $15.11. Azar was a bright spot in the segment, with revenue up 24%. The company credited its new AI-powered matching algorithm for helping drive user engagement and monetization.
MTCH's Evergreen & Emerging segment, meanwhile, saw its revenue decline by -5% to $174 million. The company noted that it was the segment's strongest performance since Q1 2022.
In my original article, I said I wanted to see signs of a Tinder turnaround before becoming more bullish on the name. On that front MTCH delivered, as the company showed that it can rebrand its marketing message to females while still maintaining its core male audience. While paying users are down, the company is doing a nice job of better monetizing its users. Meanwhile, Hinge continues to be a growth driver with strong user growth and terrific monetization.
Outlook
Looking ahead, MTCH guided for Q3 revenue of between $875-885 million, representing 8-9% growth. It is forecasting adjusted operating income of between $320-325 million.
For Tinder, the company is projecting revenue to grow close to 10% in Q3, and it believes that the brand can grow double digits in Q4.
For Hinge, the company is looking for revenue growth to continue to accelerate in Q3, helped by European expansion, core user growth, and new monetization efforts.
For its Asian segment, it forecast that revenue would decline to low-single digits, while it expects a similar revenue decline for its Emerging and Evergreen segment.
On its earnings call , CFO Gary Swidler said:
"For full year 2023, Match Group is on pace to achieve 6% to 7% top line growth and deliver better AOI margins than we did in 2022 as Tinder's revenue continues to reaccelerate and we remain very cost disciplined overall. We're excited by the momentum we've seen in the business over the past few months. We're confident that the strategies we've implemented, changes we've made and approach we've taken are setting us up for more consistent top line growth at strong levels of profitability. While we're pleased with the progress, we recognize there is more to do, especially at Tinder, where delivering stronger user trends and sustained payer and revenue growth is squarely in our focus."
You really like to see that growth is expected to accelerate at its two primary brands Tinder and Hinge. Going forward, I'd like to see Tinder's paying users start to stabilize a bit more. For its part, the company did say Q3 sequential trends should be much better than Q2.
Valuation
MTCH trades around 12.7x the 2023 consensus adjusted EBITDA of $1.22 billion and 11.2x the 2024 consensus of $1.39 billion.
It trades at a forward PE of 15.6x the 2023 consensus of $2.83. Based on 2024 analyst estimates of $3.28, it trades at 13.5x.
MTCH is projected to growth its revenue 6.5% in 2023 and over 11% in 2024.
Its closest peer is Bumble ( BMBL ) which trades at 11.8x 2023 EBITDA estimates, but which is projecting much higher revenue growth of nearly 18% this year.
Conclusion
In my original article I said MTCH was an interesting turnaround story, but that I'd like to see a cheaper stock price or more signs of improvement at Tinder. With its Q2 earnings and guidance, I got the latter. As such, I'm going to upgrade the stock to "Buy," as Tinder is improving and Hinge looks like it could be a gem.
My $60 target price equates to about a 14x multiple on 2024 EBITDA.
For further details see:
Match Group: Upgrading To Buy On Strong Tinder Results