Match Group (MTCH) Down 10.5% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Match Group (NASDAQ:MTCH). Shares have lost about 10.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Match Group due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Match Group Beats on Q4 Earnings & Revenues

Match Group reported fourth-quarter 2019 adjusted earnings of 45 cents per share, which increased 15% from year-ago quarter.

Revenues of $547.2 million climbed 20% year over year driven by robust momentum at Tinder and solid performances of Meetic, Match and PlentyOfFish.

The Zacks Consensus Estimate for earnings per share and revenues was pegged at 50 cents and $555 million, respectively. Excluding the effect of foreign exchange, the top line was up 21% year over year. The increase was primarily driven by rise in average subscriber base and average revenue per user (ARPU).

Notably, on Dec 19, 2019, Match Group entered into a definitive agreement to separate from its parent company — InterActiveCorp/IAC.

Quarter Details

Average subscriber base increased 19% to 9.6 million and ARPU increased 1% to 59 cents, at the end of the reported quarter.

North America subscriber base increased 9%, while International advanced 30%. Growth in ARPU was driven primarily by strength in North America (up 5% year over year), offset by 1% decline in International subscribers year over year.

Moreover, robust Tinder average subscriber growth of 36% year over year came to 5.9 million, positively impacted the quarterly results.

Direct revenues from Tinder grew 39% year over year, primarily on the back of higher number of Gold subscribers and a la carte revenues from subscribers.

Adjusted EBITDA was $214.7 million, up 22% year over year. Adjusted EBITDA margins expanded 80 basis points (bps) year over year to 39%.

Total cost and expenses as a percentage of revenues expanded 10 bps year over year and came in at 67.1% in the reported quarter.

Operating income advanced 20.1% from the year-ago quarter to $180.2 million. Moreover, operating margin contracted 10 bps to 32.9%.

Balance Sheet

Match Group exited the fourth quarter with cash and cash equivalent balance of $466 million, up from $366.4 million reported in the previous quarter. The company had long-term debt of $1.6 billion, flat sequentially.

As of Dec 31, 2019 the company generated operating cash flow of $658 million compared with $472.9 million in the previous quarter. Free cash flow came in at $620 million compared with $442.8 million in the previous quarter.

During the reported quarter, the company repurchased 0.4 million shares at an average price of $72.57 per share. The company had 9.9 million shares remaining under the previously announced share repurchase program.

Guidance

Match Group anticipates first-quarter 2019 revenues between $545 million and $555 million. Tinder remains the key catalyst.

The company expects operating income between $143 million and $148 million while adjusted EBITDA is anticipated to be in the range of $170 million to $175 million.

For full-year 2020, the company expects year-over-year growth in marketing spend for a number of growing brands like OkCupid and Hinge, particularly in Asia.

Note: The EPS data mentioned in the text of this section differs from the rest of report due to the difference in calculation or consideration of one-time items.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted 14.38% due to these changes.

VGM Scores

Currently, Match Group has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Match Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.