THE HEDGEYE EDGE
Match Group (MTCH) is the industry leader in the dating space which is becoming an increasingly tighter oligopoly. Match Group has a portfolio of ~45 brands; many of which were once promising competitors that MTCH acquired before they could become material threats. However, most of MTCH’s business is concentrated around a few brands, particularly Tinder, which may have achieved escape velocity in terms of its scale. Tinder is also a TAM expander from a monetization perspective.
The industry has a series of demographic tailwinds that should progressively expand MTCH’s total addressable market, which it has barely penetrated. Furthermore, concerns about Facebook (FB) are providing a decent entry point on one of the better TAIL stories in the Internet & Media space.
The stock lost nearly 30% of its value a month ago when Facebook announced it plans to enter the space, and since then the stock has recovered much of that sell off. We recognize that FB entering the space is a risk, but our only real concern was whether FB plans to charge for its dating service, which doesn’t appear to be the case. We expect FB to remain an overhang on the stock until MTCH shows that it can maintain its current pace of sub adds after FB's dating service goes live (date TBD, still in development).
In the interim, we believe MTCH has a favorable near-term fundamental setup given what we estimate to be relatively conservative 2018 guidance/estimates, even before considering any product enhancements that the company plans to launch later this year.
We expect the online dating pool to expand given both emerging and continuing tailwinds that should collectively increase the lifetime value of MTCH's user base. An aging U.S. population is actually a tailwind. In the US, roughly 40% of the non-millennial population is currently unmarried (as of 2016), many of which had at least some exposure to Match.com when it originally launched (1995). And while there is a direct relationship between age and the stigma of online dating, the delta isn’t really that wide as some believe.
While the aging of the population may seem like an optical headwind to sub growth, it’s also a tailwind that should stack on top of the ARPU tailwinds. Tinder’s pricing is somewhat of a black box, but the conventional understanding is that Tinder prices increase 2x once a sub enters their 30s.
MTCH OWNS THE SPACE
MTCH owns ~45 brands operating in over 190 countries. MTCH is majority-owned by IAC, which in turn employs a similar roll-up strategy whereby it either invests behind its acquired properties, or harvests their cash flow after their growth stagnates. It’s similar to EXPE, but the reason why it works for MTCH is because it’s the industry leader.
See below. The chart to the right suggests Tinder will remain MTCH’s primary growth engine and industry leader for the foreseeable future. The reason being is that the main driver behind any dating service is the network effect, whereby the greater the pool of available singles, the more new users it will attract to the platform, and so on and so forth. In short, Tinder’s current scale is its moat.