Match Group (NASDAQ:MTCH) reported third-quarter results on Nov. 6. The owner of popular dating apps and websites such as Tinder and Match.com delivered sharply higher sales and profits, but also indicated that growth could slow in the coming quarters.

Match Group results: The raw numbers

Metric

Q3 2018

Q3 2017

Year-Over-Year Growth

Revenue

$443.9 million

$343.4 million

29%

Operating Income

$139.9 million

$91 million

54%

Adjusted EPS

$0.39

$0.19

105%

Data source: Match Group Q3 2018 earnings release.

What happened with Match Group this quarter?

Match Group's subscriber base grew 23% year over year to 8.1 million. The gains were fueled by a 61% jump in Tinder subscribers. "Tinder remains the centerpiece of our growth story," CEO Amanda Ginsberg said during a conference call with analysts.

Match Group is also enticing its users to spend more in its apps. The company's average revenue per user (ARPU) rose 6%, to $0.57. Here, too, the increase was driven mainly by growth at Tinder. Premium versions of the popular app, like Tinder Gold, are proving popular among users. "More than 60% of the 4.1 million subscribers on Tinder are now Gold subscribers, up from 50%-plus in the second quarter," Ginsberg said. With more people signing up for Tinder Gold's $15-per-month subscription plan, Tinder's ARPU jumped 24%. 

Together, these subscriber and ARPU gains helped to drive Match Group's revenue 29% higher in the third quarter, to $444 million.

Better still, Match Group is becoming more profitable as its apps gain scale. Operating margin improved 5 percentage points to 32%, and adjusted EBITDA margin -- which excludes stock-based compensation expense and acquisition-related items -- increased 2.4 percentage points to 37%.

All told, adjusted net income soared 108%, to $117 million, or $0.39 per share.

Special dividend announcement 

Match Group's improved profitability can also be seen in its cash flow generation metrics. Its operating and free cash flow surged 85% and 94%, respectively, during the first three quarters of 2018.

The company intends to pass some of this cash on to investors in the form of a $2 per share special dividend. The dividend will be paid on Dec. 19, to shareholders of record as of the close of business on Dec. 5.

CFO Gary Swidler said: "We constantly analyze various ways to return capital to our shareholders. The dividend is something that we've been contemplating for some time, and we felt that now was the right time to provide capital return to shareholders via this method."  

A woman twirls her hair while looking at her smartphone.

Image source: Getty Images.

Looking forward

Match Group offered guidance for the fourth quarter that, if realized, would represent a marked deceleration in growth.

The company expects to generate fourth-quarter revenue of $440 million to $450 million. That would represent year-over-year growth of 17% at the midpoint of the range, down sharply from Match Group's 29% growth in the third quarter. 

Management also noted that higher anticipated marketing spending would weigh on profits in the fourth quarter. 

"We're investing in our businesses to drive growth for the long term," Swidler said. 

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Match Group. The Motley Fool has a disclosure policy.