Tero Vesalainen
Funding Thesis
Match Group (NASDAQ:MTCH) stays the dominant world chief in on-line courting, however bears have soured on the inventory as a result of slowing development over the previous yr. At 13x ahead earnings, Match Group is considerably undervalued given its strong core enterprise fundamentals and development prospects. Whereas short-term challenges at Tinder have impacted outcomes, Match boasts an unmatched portfolio of high courting manufacturers, together with upstart Hinge, which place it for a return to sturdy development. Match additionally sports activities glorious margins and money technology that handily cowl its manageable debt load. For long-term traders, Match supplies a compelling alternative to purchase an trade chief at a considerable low cost.
Unmatched Model Portfolio Drives Main Market Place
As CEO Bernard Kim said on the Q1 2023 earnings name, Match’s “goal is to broaden and innovate the courting expertise for singles all over the world.” The firm’s distinctive aggressive benefit is its unmatched portfolio of high on-line courting manufacturers tailor-made to totally different demographics and consumer preferences. This consists of established names like Match, OkCupid, and Loads of Fish together with younger-skewing apps like Tinder, Hinge, and BLK.
Match’s flagship app Tinder pioneered the “swipe” mechanic and stays the undisputed world chief in on-line courting. Tinder has risen to scale and recognition quicker than every other service within the on-line courting class, and now boasts over 10 million paying subscribers globally. Whereas Tinder has confronted latest headwinds as a result of value will increase within the US, its huge model consciousness and consumer base place it for an eventual reacceleration below new management and product adjustments.
In the meantime, Match’s second development engine Hinge is quickly gaining share, particularly amongst millennials searching for relationships. From basically zero in 2018, Hinge has already surpassed 1 million paying subscribers and is projected to generate $400 million in income in 2023 per administration’s steerage. As Swidler said on the Q1 2023 name, Hinge’s “product-market match has been clear in each market” throughout its European enlargement. With a differentiated relationship-focused providing and its personal viral development, Hinge provides Match a second high-growth model beside Tinder.
Bear Case Overly Centered on Close to-Time period Headwinds
Match’s outcomes have been pressured over the previous yr by a pullback in on-line spending and stagnating subscriber development at Tinder. Nevertheless, bears extrapolating these near-term traits underestimate Match’s development prospects. Tinder stays immensely in style amongst younger demographics in North America and Europe. Per the This autumn 2022 letter, administration sees substantial room to reactivate lapsed customers and entice new segments in these markets.
Product adjustments slated for 2023, together with enhancements concentrating on feminine customers and a brand new premium tier, can reignite development. As Kim defined on the Q1 2023 name, Tinder’s product roadmap will “redefine Tinder’s model narrative” and “resonate with in the present day’s youthful technology.” In the meantime, the fast rise of Hinge additionally rebuts claims that Match’s development days are over. Hinge is succeeding throughout English-speaking and European markets and nonetheless has substantial monetization headroom. As Swidler said on the Q2 2023 name, Match is “assured that Hinge’s momentum will lead it to ship roughly $400 million of direct income in 2023.”
Strong Margins and Money Era Help Development
Match boasts glorious profitability, producing ~$530m in working earnings over the trailing twelve months. This working efficiency outcomes from Match’s high-margin subscription-based enterprise mannequin. Trailing twelve-month free money circulation is $785 million, offering substantial capital to reinvest in development. Match is guiding for about $800 million in free money circulation technology in 2023. This sturdy money technology simply covers Match’s manageable debt load. Debt stands at 4 occasions EBITDA, which can be on the upper finish however curiosity expense consumed solely 5% of the final twelve months income.
With money supplied by operations properly above capital wants, Match additionally introduced a $1 billion share repurchase program on the Q1 2023 name, equal to 10% of its market cap. As Swidler defined, “our important quantity of free money circulation technology…elements into our capital allocation coverage.” Match represents a uncommon mixture of strong margins, minimal capital depth, and subscription-based income that ought to proceed driving sturdy future money technology to fund development.
Engaging Valuation Given Development Prospects
At $37 per share, Match trades at simply 13x ahead earnings. These multiples sit properly under high-growth software program friends and fail to mirror Match’s dominant trade place. Estimates name for income to reaccelerate from 5% development this yr again to 11% development in 2024, whereas EPS grows 14% yearly over the following two years. Assuming the market appreciates Match’s dominance with constant efficiency and awards it with a better a number of of 15x earnings, my 2028 estimates are the next with 10% income CAGR and 15% EPS development:
Income $5,450m EPS $5.67 P/E ratio 15 Goal value $85 Annualized Return ~17.8% Click on to enlarge
With Tinder stabilizing and Hinge persevering with to achieve share, Match’s development story is much from over. The present valuation leaves substantial upside as soon as the market acknowledges Match’s long-term potential.
Dangers and Conclusion
Match does face dangers going ahead. Competitors is growing in on-line courting from gamers like Bumble, forcing Match to continuously improve its manufacturers’ positioning and options. A protracted macro slowdown may curtail on-line spending and courting exercise. Execution dangers additionally exist round revitalizing Tinder’s development and monetizing Hinge’s fast consumer positive factors. Nevertheless, Match’s portfolio method supplies range, whereas Tinder and Hinge’s sturdy momentum rebuts claims that its greatest days are previous.
On the present valuation, which is a fraction of its historic earnings a number of, Match represents a uncommon alternative to put money into an trade chief at a cut price. Match’s unmatched model portfolio, increasing development alternatives, and glorious cash-generation capabilities make it a compelling funding. Share repurchases present further help to the share value. For long-term traders, Match supplies a low-risk pathway to substantial upside over the approaching years.
