Match: 7 Reasons To Buy Now
Summary
- Match's stock price has fallen 25% over the last month.
- The stock is cheap now if you look at the growth of the company.
- Match has several levers to pull: international growth, more monetization and new products.
- In Q2, Match will become independent from IAC and that will probably boost the share price because it will be included in the S&P 500 and big funds can buy then.
- I do much more than just articles at Potential Multibaggers: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »
Introduction
The coronavirus, or COVID-19, is spreading around the world, not just physically, but also mentally. The stock market has caught a flu too, with the market in correction status right now. Some stocks can take advantage of the coronavirus. Zoom (ZM), for example, is an obvious company that benefits from the virus. Other companies are hit extra hard. Match Group (NASDAQ:MTCH) is in that last category. This is how its price has done over the last month:
Data by YCharts
Now is the time to take advantage of this fall and accumulate shares in Match. In this article, I will give you 7 reasons why.
An introduction to the company
Most of you will know Tinder, the most important product of Match. You can see how important it is for the company in this graph:
(Source: Company presentation)
All other Match brands are more or less stable, not growing and not going down too much. But Tinder lifts the total number of paying subscribers, producing 19% YoY growth. Of the total revenue in 2019 of $2B, Tinder brought in $1.15 billion. Despite its size, Tinder's revenue still grew by an impressive 43% from 2018 to 2019.
(Source: Company presentation)
The number of paying subscribers keeps rising too:
(Source: Company presentation)
Tinder has already been downloaded more than 350 million times, crushing all competition:
(Source: Company presentation)
But Match Group does much more than just Tinder. It has built out a real empire of online dating services:
(Source: Company presentation)
Reason #1: International Opportunity
While the adoption of Tinder and other online dating apps has become more and more widespread in the US and Western Europe, there is still a lot of market share to take in the rest of the world.
Tinder and the other apps Match owns don't fully cover the biggest markets yet, with 75% of the worldwide singles: Latin America, Africa, Asia-Pacific and the Middle East. Two out of every three singles in those regions have never tried any online or app dating service, which is comparable to the USA and Europe around 2012 when Tinder launched. Countries like India or Japan, with their huge populations, have not even started using Match products. Young people there are, as anywhere else in the world, very mobile-savvy so there are not that many technical hindrances.
There is still a certain social stigma around online dating sometimes, but that was the case in Europe and the USA too just a decade ago, which shows how quickly that can change.
(Source)
Reason #2: Valuation
Match Group has a market cap of $18.5B now and I can see that expand several times over the next few years and decades. The company has a P/E of 35 and a forward P/E of 25.8, according to finviz.com. That's low for a company growing at Match's speed.
Match is expected to grow its earnings annually by 25.5% over the next five years. If you calculate a 'future PEG' by dividing the forward P/E by the growth expectations of the next five years, that would give Match a 'forward PEG' of just 1, which is really cheap for a quality company riding a long-term trend like Match.
Reason #3: The spinoff
As you may or may not know, probably in Q2, Match will be spun off from its mother company InterActiveCorp (IAC), which owns 81% of the shares and 97.6% of the voting power.
For investors, one of the most important consequences of the decision to split off is that Match shares will have a much larger float than now. That means that the company can be included in the S&P 500, which will certainly boost its price, with all the index investing that has become so popular over the last few years. Big institutions will also be able to buy shares then, providing another boost.
Reason #4: More Growth
I think Match on its own can do an even better job monetizing its very valuable assets. Match is clearly the market leader: 60% of all relations that started online or on an app began on a Match Group product. The company offers products in 40 languages worldwide and the products have 9.8 million paying subscribers.
Because Match was a subsidiary of IAC, I had the feeling Match had to restrain on growth and focus on profitability. As a shareholder, I wouldn't mind if the company invested a bit more to conquer new areas on the map. When the company sees an opportunity, it can make swift investments, without IAC watching closely.
Another strategy for growth is, of course, the use of acquisitions. According to Bloomberg, Match considers buying the Meet Group (MEET), although my fellow contributor The Friendly Bear wrote a convincing article that the rumor may be false. My point is, though, that Match can tuck in several acquisitions, streamline them into the Match ecosystem and monetize them more efficiently. After all, the company has shown that it can do that with Hinge, which was acquired in February 2019.
Reason #5: Monetization
If you look at the online dating market right now, you can see why monetization has not reached its limit at all. Here is a graph:
(Source)
As you can see, 48% of young people, between 18 and 29, have used an app to meet other people for a relationship. That's logical for two reasons: that is the group that looks more for relationships and that is also the group that relies more on its mobile phone for about anything.
But this is also the group with the least money of all adults. Over the long term, though, as this group ages, the customers will be willing to pay more if their life path makes them single again. So, I think that monetization is only starting. Don't forget, for example, that Tinder only started monetizing in 2015. In just five years, revenue grew to $1.15B and I think it has lots of room to continue to grow.
Reason #6: A long-term trend
Long-term trends are the most powerful weapons any investor can have in the battle to seek alpha, especially if you have the leading player on the field, as Match is for online dating. Match is by far the biggest. These numbers are a bit outdated (2017) but the four Match products are still in the top 5 now:
(Source)
In the USA, online dating has already become the number #1 way to meet your partner:
(Source)
I don't see this trend going away any time soon, but to the contrary. Of course, there is an inherent churn for Match's products. If you have a match, you will delete the app. But overall, users are expected to grow by 5%+ over the next few years.
Reason #7: exciting new products
There are a lot of possibilities left for Match when it comes to technology. Millennials love experiences and Match could really cash in on that. What about a Tinder cruise, for example? Or Tinder festivals? I think a whole bunch of offline possibilities exist for Match to boost the experience and make the whole experience safer at the same time.
But of course, the biggest change will come online. AI is already used now but that will only get better and more precise.
The Internet of Things (IoT) also creates exciting possibilities. What if you can be matched with someone not by filling out a long and sometimes boring questionnaire or by just judging a book by its cover but by behavioral matches? What you do, not what you say, will become more important for matches and I think that behavior says at least as much about you than your image of yourself.
There are many other possibilities: first dates in virtual reality, for example. This would save you the trouble of meeting someone offline, only to be disappointed because the picture was clearly photoshopped. And it would be much safer.
Or how about genetic matching? There are several elements that play a role in the choice of our partner and one is genetic compatibility. Pheromones also play an important role that we don't fully understand yet. So, I think there are plenty of opportunities left for Match.
Conclusion
Match Group is one of the stocks that has plunged because of COVID-19. While the general market is in correction territory now, Match has fallen 25%. This is an overreaction because there are still lots of opportunities for Match. Its international growth has only started and outside of the US, only Europe is a somewhat more developed market. 75% of the singles of the world live outside of Europe or the US, though. The company is also the leader in a long-term trend and its monetization is still young.
The spin-off of Match from IAC will probably give the stock price a boost because the company will be included in the S&P 500 and big funds will also be able to buy a position. And with this valuation, I'm pretty sure they will.
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This article was written by
From Growth To Value is an individual investor with a long-term perspective. He targets high-quality disruptive businesses who have early multibagger potential. His rigorous research process provides him and his readers conviction in these companies.
He invests personally in the ideas he shares and leads the investing group Potential Multibaggers. Features of the service include: best buy list, access to his personal portfolio and watchlist, 5+ articles of individual stock coverage, weekly review regular webinars, overall quality scores, and a vibrant chat for discussions. Learn more.Analyst’s Disclosure: I am/we are long MTCH. 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.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (29)
2) 30-40% of members are not ever going to pay for the product (women)
3) Another 10-20% are never going to pay for the product (highly desirable men)
4) Out of the remain 40-60%, I assume AT LEAST 1/2 will never pay for it and just use a bunch of different dating apps, take their swipes, and reset daily.
5) Of the remaining 20-30% that may pay for it, it will only be for a limited period of time. (Until they find a match or enough matches they like OR they realize that paying to double their baseline chance of finding date(s) is meaningless when the baseline rate is <1% for most users willing to pay)
6) The demand for a product is driven by how good it is. The best dating app would quickly match you with a compatible person. However, this defeats the purpose of dating app as a business because an "app that's meant to be deleted" is not an app that can generate long-term revenues from its customers.
7) Dating apps only reach strongly a very small demographic (18-35, in urban environments)
8) Outside markets are not going to be easily penetrated, at all. The American sexual revolution took place in the 60-70s!!! And it took up until the mid 2000s for the hook-up culture to really take-off. The biggest markets (China and India) are nowhere near that cultural transformation and the demographics do not support such a culture (skewed male-female ratio already). As for Non-UK-Europe and Latin America also aren't big on the apps because their culture inherently is more open to random meetings and in-person flirting...much more than the more individualized/anti-social economies of the US/UK.
Thanks for reading and commenting. Here are my remarks about your comments.
1 to 4: it's surely true that there will always be a substantial part that doesn't want to pay... that much. I think if you enter a low-cost price (something like $1.99 per month) with the guarantee that the product is really good, you have a different market, I think.
5+6 This is inherently true, of course, but the model has already proven that it works.
7. 'Dating apps only reach strongly a very small demographic (18-35, in urban environments)'. That's true... for now. I just see this as a huge opportunity left. People who have used an app before and whose relationship ends will use it again if they're older. Don't forget that about 1 in 2 marriages fails. In relations, that number is even much higher.
8. I don't see this as part of the sexual revolution alone. Tinder probably is, but the other apps give solutions for people who are spending more and more time online, getting out of their house less and less. That problem is also there in urban areas in India and China. If not, Momo and TanTan wouldn't exist in China.
As for Europe ex-UK, I really don't know where you get that. I am based in mainland Europe and 4 out of the 5 singles of my age (I'm 43) use Tinder and there is not even a taboo anymore about it. If there's a single, his or her whole environment encourages that person to get on Tinder.
GLTU and keep growing!
I think it will be a choice for some people. Suppose you have a genetic defect and you know that if that genetic defect is also in your partner, you can never have children or healthy children. I think you'd like to know then. Every new technology can be used in a dangerous way but it can do a lot of good at the same time.
GLTU and keep growing!
Thanks for reading and commenting.
As for the CEO switch: I see that as a consequence of the IAC split-off. The subscribers of Potential Multibaggers got my full thoughts in more detail but in short, I don't worry about it.
As for the FTC investigation, I don't see it as substantial to the long-term case for Match. There will certainly be fake accounts. But is Match responsible for these? Even if it would be, there would be some sort of fine and that would be it.
GLTU and keep growing!
Fake accounts are one thing but there's a correlation to their revenue and growth curve based on how active the bots where. Once the bot activity declined on their end, so did the total active users and revenue.
Correct: the more people use it, the more people will have benefits and the more new people will use it.
GLTU and keep growing!
Well if you use Facebook you also use probably Twitter, Instagram and WhatsApp.
They do not close each other away.
Network effect is strong but also weak because a competitor can offer better/different product and people move to it if there is enough demand for it.
Network effect works only if you know how to use it.
Google vs Match
Which one them use Network effect better?
I say that google has a stronger moat in use.
You can beat others on the search engine but not online dating services because it is not have so strong Network effect because you can always switch to another.Google moat: More people use it the more accurate is the results it gives + other services it can offer.Match Moat: More people use it the more value it provides.I believe that Google have one of the strongest moat that you can have.At least at this moment...
Winners keep winning!
