Under the Spotlight: Match Group (MTCH)

Helping hundreds of millions of romantics around the world find love, Match Group is the stock market’s real-life cupid. With names like Tinder and Hinge on their books, swiping right is a US$40b business. We put Match under the spotlight and look into the business of love.

At times we may overlook just how powerful the shiny little computer tucked into our pocket is. Sure, the cinema-quality camera integrated with a credit card and fitness monitor is cool, but our phones can also lead us to love.

The way I have romanticised this is not accidental.  

Until recently, those who wanted to find a date without having to leave the house were forced to use online dating sites usually reserved for an older generation. Today, all you have to do is pick up your cell phone and open a dating app that will most likely belong to Match Group.

With over 40 different companies in its portfolio, Match Group ($MTCH) is definitely the leading player in the dating apps market. With names like Tinder, HInge and Plenty Of Fish, if you’ve ever tried to flirt on your iPhone, chances are you’ve used a Match Group app. In fact, according to data from the company itself, 60% of relationships that start online have their beginnings in some of the group’s apps.

Each of the group’s apps has a different specificity, geared to different cultures around the globe. The business model, however, is always very similar: users enjoy a freemium model, in which they can choose to use the service for free, but with ads; or they can sign up to subscriptions that, in addition to removing the ads, confer a series of benefits to users, with features that can improve the visualization of their profile and, thus, increase the chances of finding new partners.

Today the holding has more than 15 million subscribers worldwide, which are the main source of revenue for the company. In the second quarter of 2021, the segment generated $694 million in gross operating revenue for the company, an increase of 27% over the same period in 2020. The ad segment, even though it grew 54% over the previous year, is still in its infancy: ads accounted for only US$13.4 million of the company’s gross operating revenue in the same period.

A FODA Problem

With the Covid-19 pandemic and people locked down, the company saw its revenues plummet by 49.7% in 2020. Vaccination and the reopening of global economies could boost the group’s revenues, with people around the world looking for new partners. Some analysts, however, point to a problem classified as FODA.

It stands for Fear Of Dating Again. The thesis is that still traumatized by the pandemic and the health protocols that accompanied it, people would not feel prepared to interact with strangers, which would threaten not only the Match Group, but all dating apps companies.

Judging by the improved results, the hypothesis does not seem to hold up, which is reflected in the company’s positive forecasts. The company’s forecast for the fiscal year of 2021 is for revenues in excess of $3 billion, up 25.4% from the prior year, when the holding company’s operating income growth streak was broken.

Plenty of Fish in the Sea

In an industry with low barriers to entry and growing at around 8% a year, and one in three couples meeting online, it is natural for new competitors to appear. Historically, the Match Group has swallowed competition through mergers and acquisitions, acquiring companies when there are synergies with its product portfolio and/or threats of market share loss. The Match Group, however, has a strong competitor that could not be bought.

Founded in 2014 by former Tinder employee Whitney Herd, Bumble is now the second most used dating app in the United States. Its business model is very similar to that of Match Group’s apps, but with a difference: it is women who take the first step. This way, the company hopes to be able to create a more pleasant and less hostile environment for the female audience, who often feel uncomfortable using such applications. Almost 80% of Tinder’s users are male. 

Newly listed (its IPO was held on Nasdaq in February 2021), Bumble ($BMBL) is highly capitalized and could end up hampering Match Group’s growth plans. Regarding its ambitions for the female audience, the company also seems to have difficulties, since 67% of its users are men, a figure similar to that found in its competitor’s apps.

MTCH and your portfolio: a long-lasting relationship?

This does not constitute financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.

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