Image source: Match Group.

Match Group (NASDAQ:MTCH), the owner of the popular dating app Tinder, has reported impressive financial growth recently. In the third quarter, revenue was up 18% year over year to $316 million, while operating income shot up 57% to $92 million. The majority of this growth was driven by its dating services, as revenue from this side of the business was up 22% from last year.

On the back of these results, Match shares have gained about 30% year to date, but there are a couple of risks to the company's business model that should not go unnoticed.

Online dating fatigue

Dating services make up more than 90% of total revenue at Match. With more than 45 dating properties, Match looks like a well-diversified machine that will benefit from the growing number of singles worldwide looking for relationships online. But a phenomenon known as online dating fatigue might act as a speed bump for the company on the road to dating riches.

According to a study from the Pew Research Center, one-third of the singles using a dating app in the U.S. have not actually been on a date through that app. The reasons behind their reluctance are numerous. As the Pew study points out, 45% of the people using online dating apps are of the opinion that it is relatively dangerous way of meeting people as compared to other settings.

Additionally, 31% believe that using online dating makes users fickle-minded and discourages them from settling down, as they can always go online in search of a new partner instead of working at an existing relationship.

Now combine that with yet another challenge -- the need to sift through many profiles to find the right match. And according to a study by the Queen Mary University of London, only 7% of men and 21% of women send a message on Tinder after a match is made. The study also found that male users may swipe right only to find out if the profiles are liking them back, with little intention of messaging potential matches.

This leads to an increase in the perception that as genuine matchmaking service, Tinder is ineffective, with users gathering likes just to boost their ego. Even if a right match is found, it does not guarantee a long-term or steady relationship, which makes the whole process of sending messages and going out on dates seem entirely worthless in the end for people looking for something serious.  

So on one hand, finding a match is difficult as one has to differentiate between the genuine and the not-so-genuine matches, while on the other, a match does not guarantee a long-term, successful relationship. This has been one of the reasons why users often delete their dating app profiles, discouraged by the entire process. According to an online community for women:

[Users] were deleting their apps because they were talking to too many men, going on too many uneventful first dates, sending out too many messages only to receive radio silence, and getting too many "Sups" from uninspired suitors. These women were deleting their dating apps because they were tired.

The HelloGiggles author indicated that many of the singles she reached out to found online dating apps such as Tinder either boring, frustrating, or time-consuming.

The threat of app dating fatigue setting in as rival services become increasingly common looms on the horizon. Match investors should keep a close eye on such developments, especially since Tinder is the most popular dating app in the country. With 60% of Match's global paid members based in North America where dating apps are now a regular companion for singles, its dating properties have high exposure to potential dating app fatigue.

Reliance on Tinder is yet another concern

Tinder is the crown jewel of Match's dating services. At the end of the third quarter, the app had a paid member count of 1.5 million, which means that it accounts for approximately 27% of the company's total paid member base.

A closer look at the growth in paid members reveals that Tinder is doing almost all of the heavy lifting. Match added a total of 1.4 million paid members on a year-over-year basis in the third quarter. By comparison, Tinder added 933,000 paid members during that same period, two-thirds of total additions.

This means that Tinder is growing at a faster pace than Match's overall dating service portfolio. As a result, Match's other properties are suffering. OkCupid's growth, for example, is being cannibalized by Tinder, according to BTIG Research.

Last quarter, Match saw greater-than-expected weakness in OkCupid's performance, though the company was short on details. It appears that Tinder growth is having a negative impact on Match's overall growth profile as the average revenue per paying user, or ARPPU, is declining.  

The shrinking ARPPU stems from the lower price point of Tinder as compared to other Match properties. For instance, OkCupid's three-month package costs $14.95 a month, while Tinder charges $9.99 a month for those under 30. Tinder's lower cost among younger users (a key demographic) is only moving them from one higher-priced service to a cheaper one.

Due to this lower price point and faster growth in the paid member count, Match's ARPPU has been on the decline over the past few quarters. A growing dependence on Tinder could prove to be a headwind for Match in the long run.

The takeaway

Match Group has witnessed impressive growth in its paid membership, driven by the popularity of Tinder. However, the risk to the company's business model in the form of dating app fatigue could hinder results in the long run.