When investors think of "social networking" stocks, they generally focus on Facebook (NASDAQ:FB), Twitter, and Snap. However, they often overlook Match Group (NASDAQ:MTCH), which owns Match, Tinder, OKCupid, Plenty of Fish, and other popular dating apps.
However, shares of Match have surged nearly 160% over the past 12 months and handily outperformed all three social networking stocks. Let's discuss why Match has been on such a tear, and whether or not it's actually a better social networking stock than Facebook.
How fast is Match growing?
Match's core growth engine is Tinder. Last quarter, Match's direct revenue from Tinder surged 136% year over year, its paid subscriber count climbed 81% to 3.77 million, and its average revenue per user (ARPU) rose 33%.
The key to that growth is Tinder Gold, the premium membership plan it launched on top of its Plus memberships a year ago. Over half of Tinder's subscribers now have Gold memberships, which include new features like unlimited likes, the ability to undo swipes, and the ability to swipe from different geographic regions.
Match has been expanding Tinder's ecosystem with new features like Picks, which curates personalized picks for users; Places, which offers better location-based picks; Tinder U for university students; and Snapchat integration via Snap Kit. It has also been investing in growing dating apps like Hinge and incubating new apps like Crown, which offers a daily ladder of potential matches.
As a result, Match's revenue rose 36% annually to $421 million last quarter as its total average subscribers (across all platforms) rose 27% and its total ARPU grew 8%. Those growth rates nearly match its 36% sales growth, 26% subscriber growth, and 8% ARPU growth during the first quarter.
Match's net earnings also rose 158% annually to $133 million, or $0.45 per share, fueled by its robust revenue growth and a nine percentage point jump in its operating margin. Its adjusted EBITDA grew 60% to $176 million while its year-to-date free cash flow rose 65% to $229 million.
Match's forecast was also rosy. It expects its third quarter revenue and EBITDA to rise 27% and 36%, respectively, at the midpoint of its guidance ranges. For the full year, Match expects its sales to rise 28% at the midpoint, and for its EBITDA to grow 36%.
Comparing Match to Facebook
There are two key differences between Match and Facebook. First, Match has a more diverse portfolio of apps than Facebook, which also owns Instagram and WhatsApp.
Second, Match is much less dependent on advertising revenue. During the first six months of 2018, 97% of its revenue came from "direct" sources like subscriptions and a la carte purchases, with the remaining 3% coming from "indirect" sources like ads. For comparison, nearly 99% of Facebook's revenue came from targeted ads last quarter.
Match's dependence on a paid model insulates it from the privacy concerns that have plagued Facebook and other ad-supported internet companies. However, this also means that Match's growth could dry up quickly if its subscriber growth stalls out.
Facebook's recent addition of dating features to its social network might cause problems for Match. However, investors should note that Match has a first-mover advantage in the online dating space, and that Facebook has often fallen short in its attempts to "disrupt" saturated adjacent markets like streaming video, mobile payments, and e-commerce.
However, Facebook is also still rapidly growing. Despite all of its recent hiccups, analysts still expect Facebook's revenue and earnings to grow 37% and 33%, respectively, this year. Facebook's stock currently trades at about 21 times forward (2019) earnings, compared to 29 times forward earnings for Match.
Some bulls also believe that Facebook's conservative guidance last quarter was a PR tactic to counter complaints that the social network was recklessly expanding with little regard for concerns about privacy and fake news. Furthermore, Facebook still has plenty of room to monetize Messenger, WhatsApp, and Instagram with new ads or features. Tinder, however, arguably overshadows most of Match's other apps.
So is Match a better social networking play than Facebook?
I personally think both Match and Facebook are solid long-term social networking plays. Match dominates the high-growth online dating niche, and Facebook remains the largest social network in the world by a wide margin.
Both companies have strong growth rates, and their stocks trade at reasonable valuations. I think investors who buy either stock should be well-rewarded over the next few years -- but Match might offer a less bumpy ride, because it relies more on subscriptions than targeted ads.