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Forget Match Group: Momo Is a Better Online Dating Stock

By Rick Munarriz - Nov 28, 2018 at 7:23AM

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Tinder makes Match Group a hot swipe, but don't snooze on China's faster growing dot-com that's now selling for a single-digit year-ahead earnings multiple.

Finding love has become easier in this age of online dating. Putting yourself out there can be as easy as setting up a free online profile. And it's not just soulmate-seekers getting hooked up in cyberspace. Investors in some of the leading players in online dating are also scoring. 

Shares of Tinder parent Match Group (MTCH) have been some of the biggest dot-com winners over the past two years. Although the stock has corrected sharply along with most online growth stocks, shedding more than a third of its value since peaking two months ago, it's still up 112% since the beginning of 2017. 

Beyond Tinder and its namesake Match.com, Match Group also plays digital matchmaker for singles on Plenty of Fish, OkCupid, and several other social introductory sites. Match Group is growing quickly and it's profitable, but there's another online dating specialist that's growing even faster and trading for less than half of Match Group's earnings multiple. Let's go all the way to China, where Momo (MOMO 0.20%) is living up to its name by offering more momentum than Match Group.

Momo app on a smartphone.

Image source: Momo.

Love is a global thing

Match Group has earned its stripes. Revenue rose 29% in its latest quarter, as a 23% increase in average subscribers and a 6% uptick in average revenue per user combined to deliver top-line growth that exceeded Match Group's earlier guidance as well as Wall Street's expectations. Adjusted earnings roughly doubled to $0.39 a share, also topping analyst profit targets. 

Momo is growing its top line even faster. The Chinese dot-com got its start as an online dating site but is now gaining traction for its social video hub, which appeals to singles and non-singles alike. Revenue soared 58% for its second quarter, and adjusted earnings nearly doubled. Momo will report its third-quarter financials next week.

Guidance tripped Match Group up earlier this month. It sees revenue growth slowing to 16% to 19% in the current quarter, its weakest increase since the springtime of last year. If Match Group lands at the low end of its top-line range, we'd be looking at its first sequential dip after 10 quarters of upticks.

We'll have to wait and see if Momo also offers uninspiring guidance when it reports next Wednesday, but it's fair to say that Momo and its country-specific platform will have a different outlook from Match Group and its global angle. In terms of momentum, it's worth noting that Momo has blasted through Wall Street's earnings projections in each of the past six quarters, double Match Group's current winning streak. 

Match Group and Momo have a pulse on what singles are seeking, and the growing popularity at Tinder and Momo find both companies cashing in on premium subscriptions. Success at both companies has translated into healthy profitability, but the valuations aren't the same. Match Group is now fetching 26 times this year's projected earnings and 23 times next year's multiple, a reasonable valuation for the undisputed market leader. However, Momo is the one turning heads, at less than 12 times this year's multiple and a little more than 9 times next year's projected profit. 

Momo is the riskier of the two stocks, given its concentration in China, but the valuation gap is too wide to ignore. It also helps that Momo has yet to disappoint investors in the third quarter, as Match Group already did a few weeks ago, with its weak guidance and head-scratching special dividend declaration.

Match Group has too many of its eggs in the Tinder basket, so it's not a lot less risky than Momo. It's a smart investment, but Momo is even smarter at this point.

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