2023-03-09 11:28:47 ET
Summary
- Match Group owns many of the world's most popular online dating / matchmaking properties.
- No matter the economy or the situation, it is unlikely that people can stop looking for mates. Even the pandemic failed to stop it.
- There are several growth catalysts ahead. At the same time, stock is now a bargain with a forward PE of less than 15.
- Grab it with both hands and feet. Rare opportunity to get this gem of a company at basement prices.
It all started in 1995 with a tiny online dating website called Match.com. 28 years later, it is still one of the oldest and most well-known dating portals, with a user base of millions of people. The site is designed to help people find long-term relationships and has been responsible for numerous successful marriages and relationships over the years. The organization behind the launch of Match.com was a little-known company (at the time) called IAC/InterActive Corp ( IAC ) which has a venerable track record of buying small promising companies, building them up and spinning them off to the public. They are responsible for companies as diverse as eBay ( EBAY ), Match Group ( MTCH ), Expedia ( EXPE ), LendingTree ( TREE ) and most recently, Vimeo ( VMEO ).
One of these, Match Group, owns Match.com and many other dominant digital properties like Tinder, Hinge etc. It's important to note that the online dating industry is highly competitive, with numerous companies and platforms vying for users' attention. Most of these platforms allow users to create a profile and search for potential matches based on various criteria, such as age, location, interests, and more. Users can communicate with each other through the platform's messaging system or by using the site's mobile app. Most platforms offer free subscription options, with additional features available to paid subscribers. Given that, it is incredible to find a company remaining at the top of the heap after 28 years in the business, especially in digital space where disruption is usually the norm.
Match Group has been able to do it by pursuing continuous innovation, recognizing market trends early and being very aggressive around acquiring interesting developments coming to market. Match Group owns most of the world's largest collection of popular online dating sites and apps including Match.com, Tinder, OkCupid, and Hinge, among others. The company is headquartered in Dallas, Texas and operates in over 190 countries around the world. As of the end of 2022, Match Group reported over 16 million paid subscribers across its various dating platforms.
In terms of revenue and market share, Match Group is the dominant player in online dating industry, with some estimates suggesting that the company holds a revenue share of more than 50% globally. The picture is even more dominating in the US with more than half of all online dating relationships originating on Match Group portfolio companies. In North America, the company has 65% market share with the next best, Bumble ( BMBL ) being just 22% . The company has also been a leader in innovation, with its various dating apps introducing new features and technologies over the years to remain at the forefront of changing societal dynamics.
Additionally, Match Group has been recognized for its commitment to diversity and inclusion, with the company earning a perfect score on the Human Rights Campaign's Corporate Equality Index for several years in a row. This is especially important going forward as gen-Z becomes Match Group's target customer in many regions of the world.
Investment Rationale
In addition to the leadership, geographically diverse portfolio, and longevity in one of the most challenging space, Match Group still has significant growth runway ahead. 95% of current revenues come from subscription fees and only 5% from advertising. Management has highlighted that as an attractive opportunity going forward.
Admittedly, the company stumbled in 2022 and financial performance was an aberration compared to several previous years. There were multiple write-downs worth ~$320M of several digital properties and a $441M litigation settlement that created additional challenges. Those are, however, one-time issues and growth is expected to resume in 2023. Management is expecting double digit revenue growth by the end of this year.
As a result of underwhelming performance last year, Match Group took immediate steps to increase accountability, collaboration, and financial performance by restructuring its management and create a more streamlined organization. There are further benefits from scale and portfolio strategy in this structure and we should start to see positive results starting this year.
Market Opportunity & Focus Areas
As you can see from the graphic above, Tinder and Hinge are going to be the central brands around which the growth story evolves. Multiple features like Audio and video chat, AI bots, virtual currency, smart paywalls, in-app Payment for goodies are on the way. In fact, 2023 product roadmap for Tinder and Hinge looks really exciting.
There is still a huge TAM (total addressable market) that has not been tapped yet. In fact, more than half of singles in North America & Europe have never tried dating products at all. Even for those who use it, adoption of multiple apps is increasing and Match Group is best placed to own most of those multi apps. In addition, Asia represents an enormous opportunity given the size of the addressable market, early stage of user adoption, and varied demographics that exist throughout the region. Even excluding China, 70% of global singles are in regions outside of North America and Europe.
Financial Story
As I mentioned above, management expects a double digit revenue growth to resume by the end of the year. Here are the exact quotes:
"For full year 2023, we reaffirm our focus on delivering 5% to 10% year-over-year growth, in both Match Group Total Revenue and Tinder Direct Revenue. We expect our year-over-year top-line growth to gradually accelerate from Q4 2022 levels, reaching double digits by Q4 2023."
In addition, there are several expense reduction initiatives in-progress that should help recover and grow margins from 2nd half of 2023 onwards. This is what management has to say about the topic:
"We also remain committed to delivering flat or better year-over-year AOI margins. We have undertaken a company-wide cost review to reduce marketing spend, headcount, and overhead expenses such as office expense and professional fees. We plan to reallocate savings primarily from our lower growth brands and corporate costs into our higher growth businesses and new bets. We expect to incur ~$6 million of severance and similar costs in 2023 related to our cost savings initiatives. We expect margins to show year-over-year improvement in the second half of the year as revenue growth accelerates and cost savings are realized."
Median analyst estimates indicate a stock price of $60 in the next 12 months which is almost 58% higher than the current price of $38.05. As of this writing, there are zero 'underperform' or 'sell' recommendations on this stock.
Projections from analysts beyond 2023 are even rosier. Average analyst estimate is for a 25% annual improvement in operating earnings and cash flows from here on. There are very very few companies that are projected to grow at that rate and are selling at these valuations. I believe this is just an incredible opportunity for investors.
Conclusion
I recommend that investors accumulate Match Group shares with spare capital when they can. I base this conclusion on several factors mentioned in the article above:
- The 28 year track record of Match Group creating and then leading the market
- Huge untapped opportunity in advertising & demographics
- Renewed focus on selective brand enhancement in dominating categories (Tinder and Hinge)
- Regional management structure to focus on APAC (Asia Pacific)
- My belief of a trough in financials and therefore, stock price in Q1'23
For further details see:
Unlocking Love And Profit: Why Now Is A Good Time To Invest In Match Group