Is Match Group a reopening stock?


Seeing as Match group (NASDAQ: MTCH) has a portfolio of dating apps, you’d think the tech company was hit a bit during the recent global pandemic. Although its digital-only products were not shut down at any time due to temporary government restrictions on social gatherings, there were still many people who were unable or unwilling to meet potential dates in person.

As a result, the company has actually seen a slowdown in spending among its various dating products in 2020. But this slowdown is expected to reverse in the years to come if the dating market returns in force after COVID. -19.

So, does that mean Match Group is a potentially great “reopening stock” game? We will take a look.

Image source: Getty Images.

Data backs it up

In its report on first quarter 2021 results, Match Group management explained how COVID-19 has affected its business around the world. The company said that in the second quarter of 2020 (April, May and June of last year), revenue growth slowed to 12% year-over-year. The business was not devastated, but it was a slowdown from 2019, when sales rose 19% for the entire year. The following quarters saw an acceleration in sales growth, with the most recent quarter hitting an exhilarating 23% year-on-year.

The report also highlights the correlation between app usage and spending and COVID-19 cases and vaccinations around the world. The number of new subscribers took a hit last spring in the first few months of the pandemic, recovered in the summer, and then took another hit with the increase in COVID-19 cases last fall. The major rollout of the vaccine in recent months has helped normalize first-time subscriber growth, which is a good sign for Match Group’s future sales growth.

MTCH Revenue Graph (Quarterly YoY Growth)

Image source: Ycharts.

However, the company is not yet completely out of the woods. The pay-per-view revenue of Tinder, Match Group’s most popular app, has seen a geographic dispersion in recent months. In North America and Western Europe (where vaccination rates are the highest in the world), a la carte daily receipts are now up about 30% since the start of the pandemic, while the rest of the world is still at the same level of spending. If these trends continue once the majority of the world is vaccinated within the next 12-18 months, it could mean a further acceleration in Match Group revenue growth.

Growth opportunities abound

The majority of Match Group’s business currently comes from Tinder, but it has tons of smaller, high-growth products in the pipeline. One of these is Hinge, another dating app that is currently the third highest grossing iOS lifestyle app in the United States. The app tripled its revenue in 2020 and is on track to double its revenue in 2021. Management plans to launch Hinge outside of North America in 2022.

Taking it a step further, Match Group is making tons of small bets on niche apps like Hawaya (focused on Muslim singles), Chispa (focused on Latinos) and BLK (focused on black singles). These apps aren’t generating significant revenue for Match Group at the moment, but they show that the company intends to tackle every corner of the online dating industry.

Finally, Match Group sees potential for growth in a category adjacent to online dating: social discovery. It just closed its $ 1.725 billion acquisition of Hyperconnect, which has two social discovery apps called Azar and Hakuna Live. These apps are all about matching like-minded people online, not just romantic partners. It’s still early in this space, so it’s hard to say how far the social discovery market can grow, but this is another potential growth opportunity for Match Group over the next few years. years.

But what about valuation?

One of the concerns investors might have with Match Group shares is its valuation. The market cap is approximately $ 41.6 billion, giving it a price to sell (P / S) ratio of 16.6 and a price to free cash flow (P / FCF) ratio of 53.4 . Both of these metrics are expensive compared to most other stocks on the market. That being said, investors should remember that Match Group’s growth has been somewhat depressed due to COVID-19, and the first indications are that once the lockdowns are over and vaccinations are increased, the growth of online dating. begins to accelerate. If you believe these trends will persist, Match Group’s valuation could drop quickly.

If you’re looking for reopening stocks that could turn into great long-term holdings, you should take a close look at Match Group.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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