Match Group (MTCH) posted another blowout earnings report last week. Shares of the parent of Tinder, Match.com, OkCupid, and dozens of other online dating sites jumped 17% after delivering second-quarter earnings results last week. The company beat estimates on both the top and bottom lines, and raised its guidance as direct revenue from Tinder more than doubled, driving overall revenue growth of 36% and adjusted earnings per share up 156% to $0.41.
The company continues to execute on its growth strategies, and the operating leverage in its subscription model is paying off with outsize growth on the bottom line. Let's take a look beyond the headline numbers and at three things investors may have missed in the earnings call.
1. Competitor products can help
One nugget of information management revealed on the call was that competition from free brands can sometimes work in Match Group's favor by growing the broader market. CEO Mandy Ginsberg was describing the initial threat to Match.com and Meetic -- essentially Europe's version of Match -- from free online dating services like OkCupid and PlentyOfFish, which at the time weren't owned by Match Group.
Ginsberg said:
The next suite of changes hit our category in early 2000. ... PlentyOfFish and OkCupid became the first to offer a free product and monetize through ads. Many observers expected these free alternatives to dominate the category and to kill Match, but what ultimately transpired is that free products brought new people into the category who were previously reluctant to pay for dating products. This influx of new users lowered the category stigma and drilled organic growth of PlentyOfFish and OkCupid.
Though the online dating market has matured since 2000, there is still room for penetration, especially in markets like Japan, where there has been a stigma against online dating, but Match Group is now finding growth with its Pairs brand. Ginsberg's statement above also hints at why the company acquired Hinge, even though that brand has minimal impact on the top line currently, and it also shows why the company believes it can adequately defend itself from a Facebook dating launch. Online dating is not a zero-sum game.
2. Tinder goes back to school
It's hard to understate the importance of Tinder to Match Group. The swipe-based app has seen phenomenal revenue growth since the company added paid features like Tinder Gold, Tinder Boost, and Super Likes, and average subscribers have nearly doubled from 2.1 million to 3.8 million.
As part of its innovation and efforts to keep the product fresh, Match Group is introducing Tinder U to help it tap further into the college demographic, the market that gave Tinder its start. Tinder U will function by creating a network of college students within a given metro area, allowing students to connect with and date other students nearby. The product will launch next week, just in time for the back-to-campus season, with a major marketing campaign on campuses across the country.
With 20 million students on college campuses in the U.S., and millions more internationally, Tinder U seems like a smart way to bring new users into Match Group's funnel, increasing the chances that they remain on Tinder throughout their dating years.
Tinder Picks, one of Tinder's newest features. Image source: Tinder.
Tinder U is one of many new features Match Group has introduced for the app recently, including Picks, a paid feature that curates matches for users, and Places, which matches users according to places that they like or frequently visit.
3. Hinge is turning the corner
In the highly competitive dating industry, users are always looking for new experiences and ways to meet. That's why Match Group acquired a majority of the dating app Hinge in June, and now the online dating specialist is poised to ramp up spending to increase user acquisition, as monthly downloads are up 400% over the last year, with meaningful traction in major cities.
On future plans for Hinge, Ginsberg said:
We plan to bring all our resources to bear to help Hinge become the next breakout success in the category. We plan to meaningfully ramp up marketing spend in the second half of 2018, and capitalize on the natural momentum the product is showing, particularly with sophisticated young users in big cities like New York, Boston, Chicago, and L.A. I'm bullish on what we can achieve with Hinge.
Hinge, a relationship-focused dating app that facilitates connections in part by using Facebook friends, has carved out a niche as a sort of anti-Tinder, with a unique product experience, which made it appealing to Match Group. There's no way to know for sure what Hinge's ultimate contribution to the bottom line will be, but management's confidence in the product, its uniqueness in Match Group's portfolio, and the company's marketing prowess all increase the likelihood of its success.
With Hinge in the pipeline, Match Group investors can rest assured that Match Group is more than a one-hit wonder. While Tinder will continue to drive the company's growth over the near term, management continues to make smart moves by innovating and enhancing its current brands, and making value-adding acquisitions that make its portfolio even stronger.
