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Love. Set. Match
Swipe right, or have things come un-Hinged for Match Group? By Benjamin Tan
“Designed to be Deleted”
That’s the tagline for Hinge, a dating app owned by Match Group ($MTCH).
Imagine being a software or consumer company that touts itself as having a really short lifespan. Wouldn’t investors just run the other way? In the current macro environment, the likes of Salesforce ($CRM), Netflix ($NFLX) and Spotify ($SPOT) are all boasting how low their churn rates are. So incredibly low, because customers cannot live without oxygen, water, SaaS, music and Tiger King. The term “mission-critical” has been tossed around so much on almost every enterprise software company earnings call, it would be a major red flag for one NOT to describe its software offering as such. Nobody wants its product to be mistaken as redundant or extraneous, so mission-critical it must be. Until actual retention starts to drop, that is.
Hinge’s tagline is hence an anomaly, but it does make sense. If the purpose of the dating app is to help one find a soul mate (singular) fast, then it should not be in use for long. Hinge is resonating with a growing number of singles - I am making a few assumptions by employing the term “singles” - despite churning them at a rapid pace, presumably due to its highly efficacious algorithm. It is expected to gross more than $300mn of revenue this year, increasing at a ~50% annual rate. Monetization is still in its early innings, according to management, and there is more to come as it expands into additional international markets. It is quickly becoming the second most popular dating app after Tinder, which is also owned by Match Group. By the way, Hinge has a really cool backstory - check out this podcast interview with its founder Justin McLeod.
Match Group: Super Holdco of Dating Apps
Match Group owns a stable of dating apps. Apart from Tinder (which accounts for more than half of its consolidated sales) and Hinge, the company is also home to established brands like Match, Plenty of Fish and OkCupid. Match Group is really like a super holdco of the human meat market, the IAC of social discovery platforms, incubating and acquiring more brands like Chispa and Pairs to keep renewing its growth S-curve. Match Group was spun off from IAC ($IAC) back in 2020, so its corporate lineage already has roots in a venture capital model.
The last 12 months, however, have been messy for Match Group. After joining the S&P 500 in September 2021, it has been almost all downhill from there. Multiple changes to leadership (including a third group CEO in three years); persistent lockdowns continuing to impact user engagement in key territories like Japan; and a $1.725 billion acquisition (Hyperconnect) that did not quite go as planned, resulting in a recent $217 million impairment.
Swipe Left or Right?
During Q2 2022 earnings call, Deutsche Bank asked the most pertinent question:
“So in the past you've been a mid-teen to sort of high-teens revenue growth company. I understood that there is some volatility in 2022, given the leadership changes and the challenges around sort of the product rollout. But when we look to 2023, how should we be thinking about the growth algorithm? And what gives you the confidence in returning to more meaningful growth?”
Management, of course, expressed confidence in moving past all that volatility to resume high growth in FY 2023. But it is not without justification. Even amidst challenging conditions, Tinder still grew 20% (on a constant currency basis) in Q2 2022. At just under 11 million paying users, it is underpenetrated for what is the largest aggregator of people looking for love or you-know-what in the world. FY 2023 revenue from Tinder alone should well exceed $2 billion, with EBITDA margins likely to be in excess of 40%. Online dating, in general, remains nascent in many countries:
At EV/EBITDA of less than 20x for FY 2022 and FY 2023, Match Group is arguably undervalued given its expected growth trajectory, especially when anchored by its twin engine of Tinder and Hinge. While it may be unclear how recent acquisitions like Hyperconnect and The League will perform going forward, current market capitalization is substantially backed by the valuation of Tinder alone.
(Long $MTCH, and former paying user of Tinder years ago)
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