Description

Match is by far the largest player in a large growing industry (online dating) that is currently trading at less than 9x FCF.  It was last written up on VIC 3 years ago at a price 400% higher than it currently trades.  Since that time Match has grown both revenue and cash flow by ~30% while its multiple has decreased by 80%.  I believe the valuation has bottomed out and that at current levels Match presents a compelling value with the ability to achieve a 2-3x return in the next two years and with a reasonable degree of downside protection through modest valuation, leading competitive position, strong FCF generation and aggressive share repurchases.

Match is the leading online dating company with a portfolio of online / app dating brands focused by either geography, demographic or interest.

About half of Match’s revenue comes from the Americas and its core asset of Tinder, which has continued to experience positive revenue growth.

Tinder (57% of Rev, 9% growth)

Tinder was launched in 2012 and is presently by far the largest online dating app. It is typically viewed as a more casual dating app.  Tinder employs a freemium model and several subscription offerings. Tinder users and subscribers may also pay for certain premium features, such as Super Likes™ and Boosts, on a pay-per-use basis. For a fee it also allows users to change their location to see dates in other geographies.

Hinge (15% of Rev, 50% growth)

One of the fastest growing apps globally particularly among the millennial and younger generations in English speaking countries and several other European markets. Hinge is a mobile-only experience and employs a freemium model. Hinge is focused on users with a higher level of intent to enter into a relationship and its services are designed to reinforce that purpose. Incorporates Video Prompts, Voice Prompts, and Voice Notes, which allows users to better showcase who they are through text, photos, video, and voice.

Match Group Asia (MG Asia) – (8% of Rev, -6% growth)

MG Asia brands are focused on Asian and Middle Eastern markets, brands include:

Pairs. Leading provider of online dating services in Japan, with a presence in Taiwan and South Korea. Pairs is a dating platform that was specifically designed to address social barriers generally associated with the use of dating services in Japan.

Azar. One-to-one video chat service powered by real-time language translations that allow users to meet and interact with a variety of people across the globe in their native language. Azar also has a live streaming option. Azar is currently focused on the APAC and Other region, with growth in Western Europe and plans to expand to the U.S.

Evergreen & Emerging (E&E) – (20% of Rev, -4% growth)

Collections of brands within E&E include longstanding traditional brands and new additions including Match (focused on users with a higher level of intent to enter into a serious relationship), Meetic (similar to Match but focused on singles over 35 in Europe), OkCupid (focused on culturally progressive user base predominately in larger metropolitan areas in English-speaking markets), Plenty Of Fish (conversational approach to online dating), and BLK (focused on black community).

Match utilized is platform to share best practices across brands to quickly introduce new services and features, optimize marketing, increase growth, reduce costs, improve user safety, and maximize profitability.

From growth darling to value stock

As the leading player in a growing industry with oligopoly structure, network effects, high FCF generation and an expansive global TAM, Match had previously traded at a premium valuation of ~55x EBITDA.  Beginning in late ’21 the growth in monthly active users (MAUs) began to slow and eventually peaked in late ’22 at ~55mm vs ~50mm today. 

Despite continuing to grow its revenue and cash flow, the decline in active users has resulted in Match undergoing the painful transition from growth stock to “value” stock, with its multiple declining from the mid-50s EBITDA to 9x today.  There has not been an investor home for it as of yet for, but I believe at this point with the company repurchasing ~10% of its stock per year while continuing to grow cash flow we have firmly entered bargain territory. 

To a large part the struggles of declining users is an execution story not a macro / saturation story.  Presently 70% of US singles actively looking for relationships do not currently use online dating.  Match has been more focused on monetizing Tinder than improving its user experience and it shows in the numbers on both fronts.  Monthly active users have decreased over the last year and a half by roughly 10% while revenues have increased.  In the end there is a tremendous level of functionality missing from the app: can’t tell who is around you now, only who around when you matched, can’t tell who around you who is active, can’t tell who is around you that is active and looking for the same connection type you are.  Some people have 100s or 1000s of matches but they are functionally just taking up dust. 

Match is rolling out several improvements to the Tinder app this year to try to improve user experience:

Meanwhile Hinge has been having tremendous success, is growing like a weed at 40-50% per year and has gone from being an “emerging” brand to now being more that 25% the size of Tinder.  Notably Match purchased Hinge in 2018 and has substantially improved both its user growth and monetization. 

Value proposition

Dating is generally expensive (30-300 per date) and there is little limit to what some people will pay for substantially better product experience – get in front of the right people at the right time.  There are bespoke services that charge 10-30k for matchmaking services.  Match has by far the largest database of singles in the world and is under capitalizing on the opportunity.

I would be highly surprised if online / app dating was not a large means of how we connect into the future and if MTCH as the dominant player did not have a large share of this market.

Competition

BMBL is the leading competitor to Match Tinder / Hinge.  It is focused on women selecting and initiating conversations.  In the end there is room for multiple players as most people use multiple apps, but in my estimation Bumble is a bad product as it based on the wrong assumption that women want to initiate – it really just doesn’t work well and you’re seeing that in the numbers as BMBL has declined.  There are other competitors targeting specific demographics, geographies and interests, but none with near the scale or breadth of Tinder, Bumble, Hinge.

Valuation

Match is currently trading at a ~12% FCF yield.  It has modest leverage (2.3x) with maturities spread from ‘26-31.  I believe this is far too cheap for the leading player in a growing highly monetizable global market.  I think if growth reaccelerates at Tinder multiples will move up by roughly 80-100% on higher cash flows, so I believe a 2-3x on the stock from here is quite achievable in the next 2 years.  On the downside if numbers slip still has excellent FCF conversion with recurring revenues and an ability to cut expenses if in maintenance rather than growth mode (2600 employees, CEO earning over 10mm / yr) and so I think while there is downside to the shares it is unlikely to be a material loss from these discounted levels.

What will turn the stock around?

Obviously if cash flows are growing while the company is buying 10% of the shares back per year, a low valuation helps all of us make even more money over the long term.  I think the one MAU trends at Tinder turn positive the stock will have quite dramatic rebound.  I think it is reasonably likely this will happen in 2025 as many of the safety features put in place to expel bad actors which reduce MAUs should in fact create a better ecosystem.  Combined with new features announced (and hopefully more improvements to come), I think next year Tinder should see positive MAU trends which I believe will be the catalyst for the stock moving appreciably higher.

The Market is not fully appreciating the value of Hinge currently.  At its current revenue run rate, and applying the the revenue multiple Match had upon its IPO, Hinge would be worth more than the entire market cap of the company.  Clearly 18x rev multiples aren’t the sort of thing that I underwrite in a value thesis, but as it continues to become a larger part of the overall company (won’t take long at 40-50% growth rates), the value is likely to be more of a focus of investors.

Risks 

Dependence on app store / risk of increasing fees. Mitigant – regulators are already reviewing the power held by apple and google as “gatekeepers”, I believe they have largely had free reign over the last decade and if anything, there are likely to be more restrictions / protections for smaller companies than have existed to this point.

New Entrants: there will be new and specialized apps that come up but there is always the network effect / chicken egg problem of getting enough users to make it functional.  Facebook tried and flopped with Facebook dating.  Could tiktok or some other platform have better success, possibly, but doesn’t seem to be as big of a risk as Match simply not executing on providing a quality user experience. 

Catalyst

Reacceleration of user growth at Tinder

Continued share repurchases

Recognition of Hinge value as it becomes larger part of the company