Over 50% of adults under 30 have used an online dating app or site. Match Group Inc (NASDAQ:MTCH) has been at the center of the industry for years, and its well-established Tinder and Hinge brands are used by millions of subscribers.
After Match Group separated from its parent company in July 2020, shares rose to nearly $170. But MTCH started a decline in late 2021 that ended with shares at a low of $30 in May 2023. But the stock has turned it around since then, shooting up 56% from that low.
The increase is due to several factors, including analysts’ sentiment that the stock was oversold.
A recent marketing campaign to attract more Gen Z users to Tinder has been successful in early reports. Plus, the May 2023 announcement that Match Group’s CEO purchased over $1 million in stock was another catalyst for the stock’s rise.
But there are still lingering concerns about Tinder’s flattening subscriber growth curve. And Match Group recently faced legal challenges that resulted in hefty penalties.
Add in the fact that the $1.725 billion acquisition of South Korea’s Hyperconnect in 2021 hasn’t brought in expected revenues, and it’s understandable that some investors have moved on from MTCH.
So why did MTCH go up and will it continue to rise?
How Match Got Started
The company was formed in 2009 by parent company IAC as a collection of dating websites, led by Match.com.
From there, Match Group grew quickly by acquiring other companies, and now the online dating conglomerate includes around 25 different brands. The company now has nearly 2000 employees and a market capitalization of over $13 billion.
But there have been some hurdles for the company over the years. A lawsuit from one of Tinder’s co-founders accused IAC’s management team of deceptive practices in compensating the founders of the app. The recent settlement concluded with Match paying $441 million to Tinder’s former leadership team.
Match Has A Lot of Dating Sites Under 1 Umbrella
Match Group divides its business segments into Tinder, Hinge, Match Asia, and a group of brands known as Evergreen and Emerging.
Tinder is one of the most well-known dating brands in the world, and the app makes it easy to connect with others by swiping through pictures and bios and liking potential connections.
As of 2022, Tinder had over 75 million monthly users. It’s the largest source of revenue for Match, bringing in 57% of the company’s direct revenue in the first quarter of 2023. But that revenue was flat year-over-year, leading the company to implement the It Starts With a Swipe marketing campaign, geared toward Gen Z as a whole and young women in particular.
Hinge is the next highest revenue driver for the company, with 10.7% of the company’s revenue in the first quarter, and it’s also the fastest-growing segment, increasing 27% year-over-year. Match Group Asia’s revenue declined 13% year-over-year to $76 million.
The Evergreen and Emerging collection of brands also declined by 8% from 2022.
Disappointing Revenues
Total revenue dropped 1% year-over-year to $787.1 million in the first quarter, a decrease that the company partially attributes to foreign exchange rates. Because of Match Group’s international reach, foreign exchange rates have been a pain point for the company. Excluding the effects of foreign exchange, total revenue actually increased by 3%.
Even though the company has over 15 million paying subscribers, that’s still a 3% decline from last year. Match attributes the decline in payers to a tough economy forcing many users to cut subscriptions. As a result, the company’s operating income declined by 5% to $198 million, reducing operating margin to 25%.
Match’s net income of $120.8 million was a 33% decrease from $180.5 million in the first quarter of 2022. That led to a decrease in diluted earnings per share from $0.60 in 2022 to $0.42 in the first quarter. But the company still has $101 million in free cash flow.
Match Group currently has a P/E ratio over 46, which will raise concerns for many investors that the stock may be overvalued.
Analysts’ Ratings for Match
Despite the decline in revenue and flattening Tinder user growth, analysts are still in Match’s corner.
Of 25 forecasts for the stock, all of them rate the stock as a Buy.
The highest forecast has the stock soaring as high as $95 over the next 52 weeks, which would be over a 97.6% increase from where the stock currently trades.
The median forecast has the stock increasing 4% over the next 12 months to $50.
The lowest forecast predicts the stock will drop 23% to $37, even though the analyst still rates the stock as a long-term buy.
Is Match Stock a Buy?
Match Group owns a portfolio of online dating brands that have enjoyed intense popularity over the years. While Tinder user growth has stagnated recently, there are positive signs that the app is making headway with younger users.
The P/E ratio is high, raising overvaluation concerns. And Match has suffered from foreign exchange rate conversions that have hampered profits. While many of Match Group’s issues can be attributed to a tough economy, it remains to be seen if the company’s users and payers will pick up soon.
But Match’s CEO believes the stock is overvalued and just made a substantial insider investment. And the company just announced a plan to buy back $1 billion in shares. Given that Match’s brands are firmly established in a vibrant industry, MTCH may be poised to continue its upward trend.
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