Last month, analysts at UBS upgraded Match's stock from neutral to buy, while a Jefferies analyst kicked off last week with his own upgrade from hold to buy after having just downgraded the stock a month ago on the basis of the Facebook threat. They all have decided that when the social media giant finally does get in the mood with its new feature, called simply Dating, there won't be much impact on Match.
Now that some Wall Street analysts have decided Facebook's amorous intentions are nothing to worry about, should you follow them into Match's stock?
More dissimilar than alike
When Facebook announced it was launching Dating, Match's stock lost more than one-fifth of its value at the prospect of having to compete against the social media giant. Facebook has 2.2 billion daily active users, which would make it a formidable competitor against Match's 7.4 million subscribers. Yet there were problems from the beginning in lining up the two services against each other.
First, Facebook wasn't planning to allow its social networking users to simply ask everyone else on the site out, but said it was creating a firewall of sorts between the two services. You could sign up for Dating, but you wouldn't automatically be inducted into it by virtue of having a Facebook account.
Second, you also wouldn't be able to try to match with your existing friends and contacts, which was a smart move on Facebook's part since it already has major issues with respecting user privacy. And despite Match offering users the ability to log in to its sites through their Facebook account, three-quarters of them choose not to do so, suggesting people want to keep their dating activities separate from family and friends.
Finally, the demographics of the people using the two sites are somewhat dissimilar. Users of Match's prime Tinder brand reportedly skew younger than the age group that uses Facebook the most.
Still a good match
So there are some factors that mitigate the actual threat posed by Facebook, but Wall Street isn't always immune to the emotions that rule individual investors. Now, with some time to reflect on the possibility, they believe Facebook's Dating likely won't impact Match all that much. As Jefferies analyst Brent Thill noted in his upgrade, his research "points to a minimal long-term impact" for some of those reasons above.
Yet beyond whether Facebook is an actual threat, does Match still offer compelling reasons to invest?
Revenue in the first quarter jumped 36% on the strength of more people upgrading to Tinder's premium subscription, Tinder Gold, helping operating profits to nearly double from the year-ago period and EBITDA to exceed even management's estimates.
Match also offered full-year guidance that showed continued strong growth based on the company's ability to "deliver innovative products that customers across our portfolio of brands find valuable," according to CEO Mandy Ginsberg.
With some of the best-known brands in dating, a large infrastructure already in place that is generating substantial growth, and the potential of a significant competitor entering the space with a model that may not actually resonate with users, Match looks like it can remain the leading site for finding romance.
Its stock has not yet recovered all the ground lost after the Facebook news, trading about 15% below its 52-week high. At 25 times trailing earnings and 23 times next year's estimates -- about even with what analysts project for its long-term earnings growth potential -- Match Group may just be a good match with your portfolio.
Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Jefferies Financial Group Inc. The Motley Fool recommends Match Group. The Motley Fool has a disclosure policy.