With a divorce rate of over 50% in the U.S. now, the use of dating apps has been increasing among the over 50 demographic. Roughly one-third of seniors have used dating apps.
One of the leading publicly traded company specializing in dating apps is Match Group Inc. (MTCH, Financial). The company provides dating products worldwide with of portfolio of brands that include Tinder, Match, The League, Azar, Meetic, OkCupid, Hinge, Pairs, PlentyOfFish, Chispa, Hakuna and many others.
A Pew Research study found that three in 10 U.S. adults have used an online dating website or app. This includes 53% of those under the age of 30.
Founded in 1986, Match Group currently has a market capitalization of $11.10 billion.
Expansion efforts
With over a dozen different brands, the company always strives to expand into new verticals or demographics. One June 1, Match announced a new dating app for gay, bisexual and queer men. The app, called Archer, is expected to be available in New York City this summer, with a broader national rollout over the following 12 months. The new app incorporates several standard features of dating apps with enhanced artificial intelligence and automated moderation features. The company has been reasonably successful with demographic-focused apps in recent years. However, the launch of a new targeted app often causes downloads of existing apps to diminish to some extent. Other successful demographic-focused apps include BLK for black singles and Chispa for Latinos.
Financial review
For the first quarter of 2023, total revenue declined 1%, but increased 3% on a constant currency basis. The important Tinder business, which represents over half of the company’s revenue, was flat compared to the prior-year period, but up 4% on a constant currency basis. The fast-growing Hinge app increased revenue 27% (30% constant currency).
Operating income was $198 million, a decrease of 5% compared to the prior-year quarter, which was an operating margin of 25%. Adjusted operating income was $263 million, a decrease of 4% over the year-ago quarter, which was an adjusted operating margin of 33%. Free cash flow was $101 million.
As of March 31, Match had $578 million in cash and short-term investments and $3.9 billion in long-term debt, of which $3.5 billion is fixed rate debt. The company’s trailing 12-month leverage ratio was 3.5 times on a gross basis and 3 times on a net basis. It repurchased $112 million in stock during the quarter. In 2022, the company repurchased $482 million in stock, but at mostly much higher prices that today.
In a statment, CEO Bernard Kim said, “We operate a highly profitable and cash flow generative business. Our capital allocation priorities are to invest appropriately in the business, to maintain a strong balance sheet, and to pursue compelling acquisition opportunities. Given our significant levels of cash flow, we expect to return at least half to shareholders over the next few years, and our Board has authorized a new $1 billion share buyback program to do so. We’re confident that as our momentum continues to build, we will exit 2023 as a solidly growing business. We believe this combination of capital return and growth should provide very attractive total shareholder returns.”
Valuation
2023 consensus earnings per share estimates are approximately $2.50 on a non-GAAP basis. GAAP earnings estimates hover around $1.75 per share, which puts the company selling at about 23 times earnings.
The GuruFocus discounted cash flow calculator creates a value of approximately $44 when using $2.50 as the earnings starting point and a 10% long-term growth rate.
There are 21 Wall Street Analysts that cover the company with an average price target of $53.42. The high price target is $95 and the low price target is $35.
The company does not currently pay a dividend, but is an active repurchaser of its own shares.
Match recently commented on its use of free cash flow:“We expect the company to generate approximately $800 million in free cash flow this year, with further growth over the coming years. Going forward, we expect to return at least half of our free cash flow to our shareholders. The remainder of our free cash flow will be deployed to drive organic growth, further strengthen our balance sheet, and make compelling acquisitions. If we can't find attractive ways to deploy the remaining free cash flow, we’ll return that cash to shareholders as well.”
The company expects total revenue and Tinder revenue to grow at double-digit rates in 2023. Free cash flow is expected to be approximately $800 million for the year.
Guru trades
Gurus who have recently purchased Match stock or added to their positions include Jeremy Grantham (Trades, Portfolio), Mario Cibelli (Trades, Portfolio) and Jim Simons (Trades, Portfolio)' Renaissance Technologies. Investors who have sold out of or reduced their positions include Frank Sands (Trades, Portfolio) and Chase Coleman (Trades, Portfolio).
Summary
Match Group appears to have multiple growth opportunities, particularly in European and Asian markets. In addition, in its important Tinder segment, 41% of single people have never used the app in North America. On a global basis, that number is 74%.
With large amounts of free cash flow to support its business and double-digit growth going forward, Match Group may make a solid long-term investment for growth-oriented investors.
