Is it Time to Swipe Right and Buy Match Group Shares?

June 28, 2023

The stock price of the popular dating application provider, Match Group Inc (NASDAQ: MTCH) has seen a significant reduction, plummeting nearly 80% from its 2021 peak.

The company has been subjected to heightened scrutiny and pressure, as it appears that its once-reliable growth engines are faltering.

With a portfolio of popular dating apps, including, Tinder, Hinge, OkCupid and PlentyOfFish, among others, Match Group is seen as the online dating industry leader.

Earning growth hit with a temporary bump in the road

This industry stalwart enjoyed significant benefits during the pandemic.

However, with the subsequent downturn, consumers began to prioritise essential expenses, impacting the company’s recent financial performance.

Despite a modest 7% revenue increase in 2022, amounting to US$3.18 billion, the growth falls short when compared to the striking 27% rise during the pandemic’s period.

Further challenges arose in 2023 as a 3% year-over-year decline in paying users for Q1 2023 contrasted sharply with a 15% increase in 2021.

A strong US dollar also exacerbated the issues, negatively affecting Match Group’s international earnings.

Given these hurdles and potential prolonged economic challenges, it’s unsurprising that Match Group’s stock has depreciated by 76% since mid-2021.

Lower reliance on Tinder

Despite the weak earnings, one of the positive key takeaways is the shift away from the reliance on Tinder, which contributes about 57% of the Group’s total revenue currently.

In Q1 FY2023 earnings from Hinge, an innovative dating app whose motto is “designed to be deleted,” have been encouraging, showing a significant 27% increase year-over-year.

New management to drive growth

The current economic environment continues to be a challenging period for Match Group but we have seen some initiatives to rejuvenate growth with the appointment of Bernard Kim as CEO in mid-2022.

Under the new management, innovation and the introduction of unique premium services and features are central to Match Group’s strategy.

The aim is to enhance user engagement and optimise earnings by customising subscription packages, a la carte features, and digital advertising.

These tactics are designed to buffer against the challenging macroeconomic environment and to reignite growth.

Match Group management projects these measures will contribute to approximately two-thirds of Tinder’s revenue growth in 2023.

Cost-cutting measures to boost margins

Match Group started this year by laying off 8% of its workforce and trimming overhead expenses and marketing costs.

This is to streamline its operation and cut costs to boost margins.

By “reallocating savings primarily from our lower growth brands and corporate costs into our higher growth businesses,” management hopes to spur a substantial improvement in H2 2023.

Double-digit revenue growth is projected for the second half of the year with enhanced margins due to accelerated revenue growth and realised cost savings.

Attractive valuation

Currently, Match Group’s shares are priced attractively at just 15.9 times forward-looking earnings projections.

Potential investors who seize the opportunity and purchase the stock at this comparatively modest multiple might realise substantial gains if Hinge maintains its present growth trajectory.

Of the 17 analysts covering the company, 11 recommend buying the stock, with none suggesting a sell.

Recovery on the horizon

I believe Match Group’s recovery is on the horizon with the company’s international expansion, innovative offerings, and a potential rebound.

Given the strong growth potential, a leaner company under new management, a reasonable valuation and strong endorsement from Wall Street, I believe it is now the right time to invest in Match Group.

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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