Match Group (MTCH -0.78%) stock slumped 6% through 10:10 a.m. ET on Wednesday despite "beating earnings" Tuesday evening. Analysts forecast the online dating app would earn $0.40 per share on $855.5 million in first-quarter sales. In fact, Match reported a profit 10% higher -- $0.44 per share -- and superior sales of $859.6 million.
Its stock dropped anyway.
Match Group Q1 earnings
Those headline numbers hide some uncomfortable facts. Despite growing sales by 9%, Match suffered a 6% decline in paying subscribers, including a dramatic 14% slump in the company's biggest market, the Americas.
Operating income fell 7% year over year -- primarily because of a 20% increase in marketing spend. Match did manage to grow its earnings by 5% year over year, but mainly because the company paid less income tax and repurchased more than 3% of its shares, helping to concentrate its earnings among fewer shares outstanding.
Is Match stock a buy?
Bad as all this sounds, things could still get worse. Match Group says revenue growth will slow to just 2% in Q2 ($850 million to $860 million), which would be much weaker than the $882 million Wall Street was expecting. Management forecasts better "adjusted operating income" of $300 million to $305 million, but (1) that's a very-non-GAAP (generally accepted accounting principles) figure, and (2) it's unclear how much of the improvement would come from lower taxes, lower investment, or other cost-cutting that could hurt growth. Looking further out, Match predicted that sales growth will remain weak, in the low single digits all year long.
About the only good news for investors, really, is that at $7.7 billion in market capitalization, Match Group's forecast for generating $1.1 billion in free cash flow this year yields a very cheap 7 times free cash flow valuation on the stock. It wouldn't take much growth at all to justify that valuation and turn Match Group stock into a viable turnaround stock -- and a "buy."
First things first, though. Match Group must prove it can grow again.
