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What the Heck Is Match Group Up to With This Special Dividend?

By Motley Fool Staff – Nov 15, 2018 at 1:39PM

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Revenue and earnings growth were strong, but the company's guidance was iffy, and it's making a questionable financial maneuver.

If you're single and looking, odds are strong you have a piece of Match Group (MTCH) software on your smartphone -- it owns most of the powerhouse brands in the space. And its paid subscribers and revenue numbers are rising nicely. But despite that, the company behind Tinder and Match.com managed to turn off investors with underwhelming guidance, plus a plan to pay a huge one-time dividend that will require it to take on more debt.

In this segment from Motley Fool Money, host Chris Hill and senior analysts Jeff Fischer, David Kretzmann, and Jason Moser talk about a few key issues, including the relationship that has Match making what looks like an unhealthy decision.

A full transcript follows the video.

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This video was recorded on Nov. 9, 2018.

Chris Hill: Investors were swiping left on Match Group this week. The parent company of Tinder, match.com, and other dating platforms issued a third report that came with -- wait for it, David -- disappointing guidance. Also, a special dividend. What is that about?

David Kretzmann: We'll get to the special dividend. On the surface, the underlying business looks to be performing really well. Match, across all its properties and apps, now has over 8 million global paying subscribers. Average revenue per user is also increasing. Tinder is especially driving a ton of revenue right now. Subscription revenue in the quarter doubled for Tinder. Tinder Gold subscriptions up 61%. Overall revenue was up 29%. Adjusted EBITDA up 38%. Those are strong profitable growth numbers.

But then, they're throwing in this special dividend, which is a bit of a head scratcher. They're paying a $2 per share a special dividend that'll cost about $560 million. This, mind you, is for a company that already has about $800 million in net debt. They'll probably be going into more debt to finance this special dividend. I think this might be kind of an underhanded way to pay back their parent company, InterActiveCorp, which still owns about 80% of Match Group's shares outstanding. InterActiveCorp will be receiving the bulk of that $560 million payout.

On the conference call, management was going through their capital allocation strategy. Most tech companies or software companies don't like to operate with debt. They have a lot of cash and no debt. Match tries to say that they fall into the group like Netflix and Amazon, which rely on debt to fuel expansion. I can get on board with that. But what sets this special dividend apart is that they're going into debt for a dividend. They're not going into debt to reinvest back in the business, which is what Netflix and Amazon are doing. A bit of a head scratcher here. Something to keep an eye on.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Chris Hill owns shares of AMZN. David Kretzmann owns shares of AMZN, Match Group, and NFLX. The Motley Fool owns shares of and recommends AMZN and NFLX. The Motley Fool recommends Match Group. The Motley Fool has a disclosure policy.

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