Match Group Inc. (MTCH) was spun out of IAC/InterActiveCorp through an IPO in November 2015. IAC created Match Group as a way to put all its dating sites under one separate roof with its own management team. Both companies are still related, however, as IAC still owns a controlling interest or 82% of Match Group.
Here are three things about Match Groups investors need to know.
1. Match brands are varied and in demand
Match Group consists of more than 45 different brands all focused on dating. The company offers its services in 42 languages across more than 190 countries around the world.
Match’s brand strategy is simple. Leverage its operations across a myriad of sites and apps to corner the world market for people looking for a relationship. With 500 million singles, online, that is one gigantic market opportunity.
Image source: Match Group.
Match Group looks to have a brand to fit each of the varied dating styles of its users. One size does not fit all. Many of the sites came through acquisitions although its most famous app, Tinder, was developed inside Hatch Labs an incubator for start-ups launched by IAC.
Tinder is the app that has caught both the interest of the dating and analyst community alike. Tinder has climbed the ladder in both the iOS and Google Play app stores to where it was ranked as the second most revenue producing app behind Netflix, Inc. in the first quarter of this year. Tinder is only available on smartphones for now and is social based dating app by location.
The product more than doubled its paid member count on a year-over-year basis and now has more than 1.8 million paying subscribers.
Match, a brand in and of itself, is the largest dating site in the world. It was launched long before the smartphone existed, in 1995. In its first quarter results the company highlighted a 10% increase in Match’s conversion rate from the free product to become a paid member within the first 30 days of registration. The company attributes this great news to an updated design of the site including easier navigation, larger profile photo, and simplified communications buttons.
2. Match makes money in three different ways
Match Group uses an internet based freemium business model. It makes money in three ways.
Users initially download a free app or sign up to a free website. In order to unlock more features of the service the member has the option to upgrade to a subscription product that charges a fee each month. As an example, the upgraded Tinder app has an age based monthly subscription fee of $9.99 per month for those under 30 years old and $19.99 a month for those 30 or older living in developed countries such as the United States. In developing nations Tinder Plus, as the upgraded product is known, is $2.99 per month.
The bulk of Match’s revenue comes from subscriptions.
Most of Match’s customers utilize the free service. As an example, only about 10% of Tinder users have upgraded to the paid product. Advertising is used to raise revenue to support this free part of the business. In 2016 only 5% of the company’s revenue came from ads. In the just completed quarter the advertising revenue was flat on a year-over-year basis at $11 million. Advertising is an area the company may grow over time. For the time being Match wants to capture user growth and avoid putting off newcomers with too many ads.
The third way Match gets paid is through a la carte purchases by both ad supported users and paid subscribers. To date these a la carte purchases, produce small amounts of revenue and are used to boost a user’s profile for a small period of time in a specific geographic location.
3. Assembling 45+ dating sites/apps has a cost
Investors need to consider that acquisitions come at a cost. In the case of Match Group, it has financed these purchases through loans which have interest payments attached to them, much like a mortgage.
The company has $1.177 billion in debt that it owes lenders against a balance of $436 million in cash as of the end of the first quarter. In 2016 the company made interest payments of $82 million which was more than a quarter of the company’s $306 million in operating income.
If the company runs into a competitive product that steals away its paying users that could hurt the ability of the company to pay back its outstanding loans. Something to consider in the fast-paced world of online dating.
