Match Group, Inc. (MTCH, Financial) is an American online dating company that owns and manages more than 45 global online dating platforms, including Match, Tinder, Meetic, OkCupid and OurTime. The company generates revenue through a combination of subscription, transaction and advertising models. Match Group provides specialized services across the spectrum of age, gender and dating goals through its portfolio brands and these products are available to users in over 40 languages in every corner of the world.
The company released first-quarter earnings on May 5, beating analyst expectations for both earnings and revenue, and reported earnings of 57 cents per share, which topped the consensus analyst estimate of 46 cents per share. Match Group has strong network effects and has consistently outperformed the market over the last five years. As the economy reopens, the company is likely to benefit from the pent-up demand for dating.
Earnings recap and the outlook for Match Group
The company reported revenue of $667.6 million for the March quarter, up 23% from $544.6 million last year. The net income came in at $174.3 million compared to a net loss of $202.8 million in the corresponding quarter of the previous year. This stellar performance was driven by Tinder's continued growth and equally strong performances from other dating apps such as Hinge, Pairs, BLK, Chispa and OkCupid. Tinder's direct revenue increased 18% year-over-year. Tinder Platinum subscriptions are now available to all users, and the company reintroduced its free Global Passport service to let users connect with people from all around the world.
The total average subscriber base climbed by 12% to 11.1 million in the first quarter, while total average revenue per user climbed by 9% to 64 cents. Direct revenue from non-Tinder brands increased by 30%, which is a noteworthy development as this provides much-needed revenue diversification for the company.
Commenting on the reasons behind the growth of active subscribers, company CEO Sharmistha Dubey said,“The vaccination rates and control over the COVID cases these last few months have resulted in our users feeling more confident about their dating lives.”
Exhibit 1: Direct revenue growth
Source: Investor Presentation
Match Group is continuing to expand its presence in international markets. As a result of these initiatives, direct revenue in international markets increased by 21% to $328.4 million in the first quarter. In the next few years, populous regions such as Asia and Latin America will play a key role in Match Group’s growth story, and the company seems to be doing the right thing by introducing various new features to improve the appeal of its dating products to people living in developing countries.
In North America, the average revenue per user increased by 24% to 70 cents, driven by the inclusion of Ă la carte services, pricing optimization for Hinge, better-than-expected premium membership purchases on Tinder and OkCupid, and an increase in live video streaming.
Adjusted Ebitda was $230 million in the first quarter, up 32% year-over-year. In addition, the adjusted Ebitda margin also increased by 200 basis points, which is a promising sign as it highlights the company’s ability to improve its profitability while scaling up.
Match Group plans to complete the acquisition of South Korean company Hyperconnect, as well as non-dating apps such as Ablo in the second quarter of this year. The Ablo app allows people to make friends all around the world. As the video dating trend gathers traction, Match Group is devoting substantial efforts to revamping infrastructure capabilities to allow video streaming, and these investments are likely to help the company grow in the future.
Commenting on the strong performance of the company and its future outlook, company CFO Gary Swidler said:
“We're delighted by the broad-based strength we saw in Q1 and our improving business momentum. To be sure, risks remain and some caution and outlook is still warranted. The world is not recovering at an even pace with slower vaccine roll-outs and higher case counts in many markets. Despite this, we're increasingly confident that we'll be able to deliver the high-end of our previously communicated revenue and EBITDA ranges for 2021.”
Match Group is the dominant player in the fast-growing online dating industry, and the company is utilizing its market-leadership position to expand into new business verticals, which is likely to ensure double-digit earnings growth in the next few years.
Industry outlook
Revenue in the online dating market has increased at a steady rate, especially in the North American region. Even though the global pandemic often prevented individuals from meeting in person, dating apps experienced an increase in the number of users during lockdowns as virtual dating gained traction.
According to Research and Markets, the global online dating industry will grow at a compounded annual growth rate of 5% through 2024. Statista projects the number of online dating application users to increase to 441.8 million by 2024. The average revenue per user is expected to reach $8.76, driven by the strong suite of premium subscription products offered by leading players in the industry.
Takeaway
Over the last five years, Match Group has steadily increased its revenue and profits, and Tinder has been the main growth driver of the company. The company is well-positioned for robust revenue growth owing to continued growth in Tinder and other non-Tinder apps. Match Group will also have access to the South Korean market as a result of the Hyperconnect acquisition, allowing the company to generate more revenue from international markets. The vaccine rollouts and economic recovery will boost the profits of online dating companies and Match Group is in a strong position to benefit from this trend. The company is richly valued at a forward earnings multiple of 65, but I think the long-term growth trajectory of the online dating industry makes the company a good pick for growth investors.
