For Match, It Is Happily Ever After

| About: Match Group, (MTCH)

Summary

The dating site has claimed a large enough market share.

Time is definitely on its side, with new products enhancing loyalty among users.

Match is the stock to watch in 2017.

Investment Thesis

Online dating has grown with more demographics joining the fray. Figures are expected to rise with higher internet usage and increase in the number of mobile apps dedicated to social connections.

Matchmaking has grown for the frown-inducing phrase to become a buzzword among savvy internet users. Online dating has been fueled by technology and the growth of websites and apps that literally bring a suitable match right to your doorstep. Modern match-making sites are mainly based online, with 70% of users accessing it from the web.

One such site is the Dallas-based matchmaking giant Match Group Inc. (NASDAQ: MTCH). MTCH is the parent company of Tinder, PlentyOfFish, Okcupid, Match.com and The Princeton Review, a test preparation company. Its portfolio of offshoots and acquisitions have propelled it into the leading dating site in the US. Dating is no longer about love only, but also about the money. In the US alone, online dating grew 5% per year between 2010 and 2015, generating a revenue of roughly $2 billion dollars.

MTCH is at a market cap of $4.65 billion, with shares trading at $17.79 apiece.

Match Group Statistical Analysis

With the dating industry almost saturated with more than 1,500 sites all targeting the same people, Match will have a turbulent year ahead, primarily when it comes to denying its competitors a foothold. Match held its IPO in the fall of 2015, with a share trading at $12.

One of the issues that came out during the Q3 2016 earnings call was the need to focus on speed and reliability of both the newly-launched web version of Tinder and the mobile apps on both Android and iOS. Tinder is the highest-earning segment of Match, with most of its revenue coming from its premium subscription service. Lower marketing budget and relative strength of Tinder, PlentyOfFish and International businesses contributed to a 57% growth in operating income, and grew adjusted EBITDA to $111 million, in a 34% jump.

Accessibility and ease of use continue to be a key factors for both new and existing users. Currently, opening a Tinder account requires users to have a Facebook (NASDAQ:FB) account. Linking two social networks might be a tad bit uncomfortable for many users. In addition, the Facebook gateway is prohibitive for users in countries like Russia and Japan where Facebook is not widely used. The Tinder URL has recorded more than 5 million unique visitors a month, and a big chunk of Match revenue is pegged on web traffic. It is available in more than 30 languages, and has recorded a billion-plus users since its founding. Tinder revenue is through ads and Tinder Plus, its paid service.

Just like the case in the previous quarters, the overall adjusted EBITDA margin grew year-on-year by 35%; EBITDA from dating was up 37%. These earnings were due to lower sales and marketing expenses dropping by 4 points, and operating expenses by 7 points. By Q4 2016, expected dating revenue was between $292 million to $301 million, to be achieved after the rollout of Tinder Boost to both subscribers and non-subscribers. Tinder Boost is basically a feature that would enable users have their profile first in the feed and give them access to more views, at a fee of $3 a month.

The Princeton Review reported lower-than-expected results, which was attributed to lower subscriptions of SAT takers. Generally, revenue from PR has been unpredictable for the last 2 quarters, with offline revenue dropping by 17%, offsetting the similar growth in the online revenue.

As with most internet sites, security and site integrity came out strongly in Q3. Match continues to grapple with fake online profiles, fraudulent traffic and privacy breaches. Between 2008 and 2013, a fraudulent organization used sites affiliated to Match to fleece $700,000 from unsuspecting victims. To prevent this, Match requires users to sign an agreement that they will not send money to other users.

With a growing population of young users and more legitimacy of online dating, the future of Match seems certain. Further, the figures on paper make a strong case for the dating giant. The net income for the trailing 12 months was 133.23 million, with EBITDA of 324.54 million. Compared to the industry average of 46.7, Match has a PE 34.9. The ROE is at 18.9 against industry average of 10.4. The total asset value is $2.092 billion against total liabilities of $1.646 billion.

With the monetization campaign whose flagship was the Tinder Boost, Match seeks to capture a larger audience to boost revenue and establish their reach outside the US. In addition, the shift from Facebook's LiveRail platform to Google will put the company back into mainstream advertising.

Most of the transition of desktop businesses to mobile is complete, and the focus is now on maximizing revenue from users and opening up new markets especially in emerging economies.

Match is a stock to watch in 2017, and structural and technological changes made in 2016 have placed it in the perfect position for growth, especially for the long-term investor. All pointers point in favor a long position in this stock.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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