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Swipe right on Match Group

The group’s diverse portfolio of dating apps should provide a buffer against competition
October 10, 2019

Once upon a time, romantic relationships were sparked by real-life, face-to-face encounters. People were introduced by friends; they bumped into each other at parties or in bars; or they finally summoned up the courage to ask out a colleague after sitting side-by-side every day at work.

IC TIP: Buy at $72.42
Tip style
Speculative
Risk rating
High
Timescale
Long Term
Bull points

Strong top-line expansion

Growth in subscriber numbers

Good diversification by product and geography

Strong brands

Bear points

Federal Trade Commission (FTC) lawsuit

Competition in dating app arena

Many couples still meet via these more ‘traditional’ routes. But, like almost every other aspect of our lives, technology has infiltrated the dating arena. In doing so, it has eroded social, geographical and temporal barriers – allowing participants to connect with each other anytime, anywhere, at their convenience.

Match (US:MTCH) has been central to this movement. The group launched its eponymous Match.com business in 1995. Today, it owns and operates many of the world’s best-known online dating brands – including, but not limited to, Tinder (the ‘swipe right’ mobile app that has seen huge adoption among millennials), Hinge and OurTime (a platform for single people over 50). Reflecting strong geographical diversification, the group’s products are available in 42 languages and more than 190 countries.

And this model is working very well. Results for the second quarter to June 2019 revealed that Match’s total average subscriber numbers rose by 18 per cent to 9.1m, with 9 per cent growth in North America to 4.5m, and 27 per cent growth in international markets to 4.6m. Tinder won 503,000 subscribers in the quarter, reaching 5.2m – representing 39 per cent growth in a year. JPMorgan had expected 400,000 new subscribers.

In turn, group revenues soared by 18 per cent to $498m (above the top end of its $480m-$490m guidance) – or by 16 per cent over the first half, to $963m. Match generates most of its revenues from user subscription fees, while its brands offer a combination of free and paid-for features. A much smaller proportion of revenues stems from advertising. With Match's own marketing expenditure declining as a proportion of sales, operating profits grew by 15 per cent over the quarter to $173m, and by 11 per cent over the half to $292m.

It follows that Match upgraded its full-year guidance, and now expects high-teens revenue growth, up from mid-teens, and cash profits of $770m-$800m, up from $740m-$790m. Positive sentiment has also been bolstered by the news that controlling shareholder and internet giant IAC (US:IAC) – which held an 80 per cent economic interest in Match as at June, and a 98 per cent voting interest – was considering spinning off its stake. Still, for now the dominance of a single shareholder is a risk.

Match’s net debt of $1.3bn looks reasonable at 1.7 times forecast cash profits. Still, JPMorgan expects these to fall rapidly to $274m by 2020. The group reported free cash flow of $212m over the six months to June, and also has an undrawn $500m credit facility.

However, it must deal with a lawsuit filed on 25 August 2019 by the US’s Federal Trade Commission, alleging that people have signed up to the service after being informed of fake love interest. The group has refuted these allegations, which pertain only to Match.com. Importantly, analysts at JPMorgan said that they didn’t believe the investigation would spill over into Match’s other apps. Its shares dipped on the day the new broke, but closed down just 2 per cent, which suggests the market isn’t hugely concerned.

Match, Inc. (NASDAQ:MTCH)   
ORD PRICE:7,242ȼMARKET VALUE:$20bn 
TOUCH:7,242-7,246ȼ12-MONTH HIGH:9,532ȼLOW:3,330ȼ
FORWARD DIVIDEND YIELD:NILFORWARD PE RATIO:31 
NET ASSET VALUE:74.6ȼ*NET DEBT:$1.34bn 
Year to 31 DecTurnover ($bn)Pre-tax profit ($m)**Earnings per share (ȼ)**Dividend per share (ȼ)
20161.1030180.0nil
20171.3332866.0nil
20181.73555184nil
2019**2.07662208nil
2020**2.42824236nil
% change+14+24+13-
Normal market size:na    
Beta:-0.14    
*Includes intangible assets of $1.5bn, or 530ȼ a share
**JPMorgan forecasts, adjusted PTP and EPS figures