MTCH: Adding Match Group to Investing Ideas (Long Side)

So then why is the stock down?

There are a couple of things. The first is Hyperconnect. Management's guidance includes $125-$135M of revenue in 2021 from Hyperconnect. If we annualize the mid-point of $130M we get $260M in revenue, which implies growth of only 19% this year (using $219M reported in public filings CY20). This growth rate is below the 40-50% growth rate management guided to when the deal was announced in February. Management also guided Hyperconnect to EBITDA breakeven in 2H21.

While this is the first time they are giving us formal guidance for Hyperconnect, back in February, they told investors they thought 20-30% EBITDA margins LT were achievable. I think most (including us) were baking in too much EBITDA contribution too soon from Hyperconnect in our expectations.

The second was the flow-through to EBITDA this quarter and the year, which was less than I (and am sure others) anticipated… partly due to $15M in increased govt relations costs and legal matters in the 2H21. The EBITDA guidance for FY21 of $1,045-$1,060M compared to the Factset consensus of $1,066M going into earnings. If we add back the $15M in incremental legal expenses that are more one time in nature, they would have guided in-line.

Pre-Earnings Call Conclusion: It looks like expectations need to be reset on Hyperconnect. What is more important is the core business is doing well, and Tinder is reaccelerating with new product rollouts ahead. Meanwhile, the Non-Tinder portfolio continues to grow nicely with Hinge revenue +150% YoY in 2Q21 (Bull case on MTCH continues to depend on Hinge).