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Mark Yu
Mark Yu
Articles (429)  | Author's Website |

Market Takes a Swipe at Tinder Operator

Match Group shares fall on weak outlook

November 10, 2019 | About:

Tinder owner Match Group (NASDAQ:MTCH) experienced quite a ride post-earnings announcement. The $19 billion dating products provider suffered share price decline as it beat market expectations. The online match maker suffered quite a drop despite having exceeded estimates.

Match Group, which also operates Match, PlentyOfFish, Meetic, OkCupid and other dating sites, reported its third-quarter earnings on Nov. 6. To its credit, the Dallas, Texas-based online matchmaker has yet again beat earnings projections by quite a margin, having delivered earnings of 58 cents per share compared to estimates of 46 cents. Match also reported 22% revenue growth for the quarter, beating expectations by $760,000.

In addition, Match’s average subscribers grew at a strong rate of 19% year over year to 9.6 million, compared to 23% growth a year ago. The company also exhibited customer stickiness as approximately 85% of its users returned to its apps the following month.

Meanwhile, Match carried a leveraged balance sheet with $1.6 billion in debt and $228 million in equity. Nonetheless, the company is capable of meeting its interest expenses as it has an interest coverage ratio (earnings before tax divided by its interest expenses) of nearly six times—about similar to last year’s. Match also reported free cash flow growth of 10% to $442 million.

What brought down Match’s stock price was its forecast for the fourth quarter. The company is guiding for revenue of between $545 million and $555 million compared to analysts' forecasts of $560 million, according to Bloomberg. Nonetheless, Match expects its margin to be consistent from last year despite its $25 million long-term investments and legal costs.

Match’s shares dropped nearly 10% in after-hours trading.

The increased volatility may have left out investors that have less conviction on Match’s long-term potential despite its widening share of the global online dating market. For its preliminary 2020 outlook, Match expects its revenue to grow in the mid-to-high teens and margins to be in line with this year’s performance.

After the share price correction, Match still seems overpriced compared to its historical multiples. The company has a three-year average forward earnings multiple of 28 and has recently traded at 32 times. Analysts, meanwhile, have maintained a bullish outlook on the online dating app operator and have an average price target of $94 a share—about 30% upside from its post-earnings close.

As it appears, Match could afford to take a much larger hit from the market and still be of good value due to its ability to maintain its high growth rates and profitability.

Disclosure: No shares in Match.

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About the author:

Mark Yu
I'm a doctor in physical therapy (DPT) with a passion for finance. Not a registered financial analyst. Value seeker. Long only. Global investing. Long-term investing.

I attempt to dissect one company filing every day. I dislike goodwill and intangible assets.

One company (review) a day keeps the speculation (hopefully) away.

"The only source of knowledge is experience."

"I have no special talent. I am only passionately curious." - Albert Einstein

"To strive, to seek, to find, and not to yield." - Alfred, Lord Tennyson

"We find one a year, that's terrific. You do not need a hundred or a thousand great investment ideas to do well. You need a couple. And, the discipline is the most important thing." - Warren Buffett

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