Match Group Inc . (NASDAQ:MTCH), the market leader of the online dating industry, has a portfolio of more than 45 different online dating services, including Tinder, Hinge, Match.com, OkCupid, PlentyOFish, and Meetic.
Subscription fees account for 95% of the total revenue of the company, whereas advertising accounts for approximately 5% of revenue.
Despite some challenges looming on the horizon, I believe Match Group is well-positioned to thrive in the post-pandemic era, so I remain bullish on the company. (See MTCH stock charts on TipRanks)
Promising Outlook
Demographic trends are in favor of the dating industry, as the success of this industry depends on the singles population around the world.
According to the U.S. Census Bureau, unmarried and single Americans account for nearly 50% of the adult population in the United States today.
There has been a spiraling trend, even in the pre-pandemic era, where world marriage rates were declining, and single living was rising in popularity around the world.
Online dating gained traction in the last 18 months, as a result of mobility restrictions that limited the movements of the global population, and the post-pandemic era is bound to be lucrative for this industry going by the increasing singles population.
There are two reasons to believe Match Group will convert this favorable industry outlook into higher profits.
First, the market leadership of the company. Match Group has ownership of a portfolio of online dating products including four of the top five brands in North America, each serving a different purpose and market in terms of demographics, location, and culture.
The company has been successful in efforts to gain market share with each of its main products, which is likely to be a catalyst of growth in the post-pandemic era as well.
Tinder has maintained its market-leading position by tripling its userbase in the last five years, and has invariably remained the No. 1 downloaded dating app, even after monetizing the app in the second quarter of 2015, by limiting free features with the introduction of Tinder Plus.
The majority of Tinder users represent the young generation seeking casual relationships, and Tinder has grown its paid subscribers from 0.3 million in 2015 to 6.2 million in 2020, because of low-priced products that appeal to this market.
Match.com, in contrast, is mostly used by mature users looking for long-term relationships, so the company has adjusted the pricing of this platform accordingly.
Match Group has also been careful to diversify and customize its portfolio by introducing products targeting certain demographics, including BlackPeopleMeet, Meetic, and OurTime (for users over the age of 50).
Second, the possibility of a major international expansion. The number of subscribers outside the U.S. has grown at a stellar pace in the last couple of years, and the company is aggressively expanding its footprint with carefully planned acquisitions, such as the acquisition of Hyperconnect, a South Korean online dating giant.
Challenges Loom
First, Match Group's financial performance depends on attracting relationship seekers, and this has a direct effect on operating leverage due to marketing costs of attracting new users. Because of the increasing competition in the industry, Match Group might have to spend aggressively on marketing to retain its leadership, which is likely to hurt operating margins in the future.
Second, compared to competitors such as Hppn, which allows users to find people whom they might have crossed paths with before, or The Grade, which allows users to grade their dates on past experiences anonymously, Tinder and Hinge have the risk of being considered as platforms with low accountability and security.
Third, a user can be active in multiple dating platforms due to the lack of switching costs, which is another risk for Match Group, as a competitor might eventually build a large network similar to that of Match in the next decade.
Wall Street’s Take
Based on the ratings of seven Wall Street analysts offering 12-month price targets for Match Group, the stock comes in as a Moderate Buy, with five Buys, and two Holds.
The average MTCH price target is $174.86 per share, which implies upside potential of 11.7% from the current market price.
Takeaway
Match Group will face stiff competition in the post-pandemic era, but the company is still in a good position to deliver attractive returns to long-term investors because of its scale, and first-mover advantages in key markets.
At the time of publication, Dilantha De Silva did not have a position in any of the securities mentioned in this article.
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