Twitter's (NYSE:TWTR) stock recently tumbled after it posted weak sales guidance for the first quarter, stated that it would stop reporting its monthly active users (MAUs), and revealed that it had fewer daily active users (DAUs) than Snap's (NYSE:SNAP) Snapchat. That triple whammy of bad news overshadowed Twitter's decent fourth quarter growth in revenue and earnings.
Instead of fretting over Twitter's future, investors should seek out better social networking stocks. One promising player that's often left out of discussions about social networks is Match Group (NASDAQ:MTCH), which owns Tinder and other dating platforms. Over the past three months Match's stock rallied more than 30% as Twitter's declined about 10%. Today, I'll explain why Match is a better overall social networking investment than Twitter.
A diversified portfolio with a clearer business model
Match's ecosystem includes its namesake platform as well as, Tinder, OKCupid, Plenty of Fish, Hinge, and other popular dating apps. Its core growth engine is Tinder, which nearly doubled its direct revenue to $805 million, or 47% of Match's top line, in 2018.
Match's total subscriber base grew 17% to 8.2 million during the fourth quarter. Within that total, Tinder's average subscribers rose 39% annually to 4.3 million.
Those numbers seem tiny compared to Twitter's 321 million MAUs and 126 million mDAUs (monetizable daily active users), but Match generates most of its revenue from subscriptions and a la carte purchases. Twitter mainly relies on lower (and less predictable) ad revenue. Twitter generated $3.04 billion in revenue in 2018, but Match generated $1.73 billion in revenue with a much smaller audience.
Match locks in customers with subscriptions, then cross-sells additional features on premium tiers. Tinder, for example, offers Tinder Gold, a premium membership plan that adds new features like unlimited likes, the ability to undo swipes, and the ability to reach users in different countries. The ramp up of Gold boosted Tinder's ARPU (average revenue per user) 12% annually during the fourth quarter. That growth boosted Match's total ARPU by 4% to $0.58.
Match is also expanding Tinder's ecosystem with new features like Picks, which curates matches for users; Places, which offers better location-based matches; Tinder U for university students; and integration with Snapchat. It also frequently acquires promising dating apps like Hinge, and incubates new apps like Crown. All these efforts ensure that Match remains the 800-pound gorilla of the dating app market.
Match's business model is also much clearer than Twitter's. Over the years, Twitter has been called a microblogging network, a news feed, and a media platform. Yet Twitter remains a perpetual underdog in all those markets, and its shrinking base of MAUs -- which fell 3% annually last quarter -- indicates that those scattered features aren't locking in enough users. Moreover, Match's focus on online dating insulates it from the various fake news and privacy controversies battering other social networks.
Robust growth and expansion opportunities
Match's revenue and earnings from continuing operations rose 30% and 33%, respectively, in 2018. Analysts expect both its revenue and earnings to rise 16% this year.
That deceleration will be caused by Match lapping the launch of Tinder Gold, which significantly boosted its revenue throughout 2018. Match doesn't expect to launch another major premium tier in 2019. Instead, it plans to focus on the monetization of its newer features and the growth of its non-Tinder apps like OKCupid and Ship, a new platform that encourages users to help their friends pick matches for each other.
Match also sees long-term growth opportunities in overseas markets like India, where Tinder is now the second highest grossing app. Match noted that OKCupid was gaining "early traction" in India, while Pairs, its matchmaking app for Asian users, was ramping up "as a leader" in Japan.
Neither stock is cheap, but Match is more reliable
Match and Twitter both trade at about 34 times forward earnings. Neither stock can be considered cheap, but Match's better-diversified portfolio, strong growth in subscription revenue, wider competitive moat, and insulation from social media controversies arguably make it a better long-term investment than Twitter.
Investors shouldn't hastily buy shares of Match, but I think it could be a great stock to buy during a market pullback. Twitter, however, could remain stuck in neutral as it tries to squeeze more revenue out of its stagnant user base.