As Match Breaks Away, Investors Shouldn’t Break Up — Heard on the Street

The past few months, it seems as if investors have been dumped from all angles.
The list of consumer-internet companies that have recently pulled guidance for the year is lengthy and growing as businesses have closed, ad budgets have evaporated and consumers hold on for dear life to what discretionary funds they have left.
Like many of its internet peers, shares of online-dating giant Match Group Inc. fell precipitously through mid-March as investors feared users would abandon subscriptions in the face of lockdowns. But despite a highly dynamic economic backdrop, the quest for love endures. Match could be a relatively stable suitor for jaded investors looking to get back in the game.
In an investor update on March 31, Match didn’t pull first-quarter guidance like many of its peers did, though it did note results would likely be around the low end of ranges it previously shared. And while the company also said it could be challenging to boost revenue sequentially in the second quarter, it still expects to show year-over-year growth.
Social distancing certainly has put a damper on dating “IRL,” but many consumers are now at home with more time to interact with online-dating apps. So while Match cited weakness in users over the age of 30 coming to its platforms lately, it also said the coronavirus outbreaks have brought an increase in conversations to Tinder, which caters to a younger crowd. Match said the length of conversations on Tinder is up anywhere from 10% to 30% in many countries. Tinder accounted for 56% of Match’s revenue in 2019.
Match also said earlier this month that relationship-focused app Hinge has seen a 30% increase in messages in March compared with January and February. Bullish investors have been banking on Hinge, which Match acquired last year, to add a new leg of growth to the Match story in 2020.
A recent survey from Jefferies highlighted growth opportunities across Match’s portfolio. The survey showed that, while just 13% of dating-app users say they already pay for services that increase their chances of finding a match, 47% said they were likely to pay for those services in the future.
Citi Research analyst Nicholas Jones said Match should grow, even in a recessionary environment, as evidenced by online dating’s increasing popularity in the U.K. during the 2008 financial crisis. The majority of Match’s revenue is generated through recurring subscription fees, which its parent company IAC/InterActiveCorp has said can endure longer relative to ad-based models in a recessionary environment. Mr. Jones said “pent-up demand” should lead to a V-shaped recovery for Match as social-distancing regulations abate.
Shares of Match are currently trading below 8 times forward revenue — a significant discount to highs of around 11 times over the past year. Match does face some near-term risk in its planned spinoff from IAC, expected to be completed in the second quarter. Although this could result in some immediate selling, Match said it has seen increased buying activity this year from many of its long-term-oriented investors. Further, the increased float should add stability to what has historically been a volatile stock.
Post-spin, it seems likely that Match could emerge from the pandemic even stronger, with now-quarantined singles desperate to mingle as soon as practical. As Jefferies analyst Brent Thill concluded following Match’s recent investor update, there is “no recession in love.”