Match Group's (NASDAQ:MTCH) stock recently plunged after the online dating giant followed up a solid third-quarter earnings report with soft guidance for the fourth quarter. Its revenue rose 22% annually to $541.5 million, clearing estimates by nearly $1 million, as its net income grew 16% to $151.5 million, or $0.51 per share, which beat expectations by nine cents. Its adjusted EBITDA rose 25% to $206.1 million.

However, Match's forecast for 19%-21% revenue growth in the fourth quarter slightly missed expectations for 22% growth. It didn't provide exact guidance for its EPS growth, but it expects its adjusted EBITDA to improve 17%-20%.

Those growth rates still look solid, so did investors swipe left on Tinder's parent company too soon? Let's take a closer look at the numbers to decide.

A woman tries to hide from a blind date.

Image source: Getty Images.

How fast is Match growing?

Match owns a growing list of online dating sites and apps, including Match.com, OkCupid, PlentyOfFish, Pairs, Hinge, and Tinder. Tinder is the company's main growth engine.

Match's total average subscribers grew 19% annually to 9.6 million during the third quarter. Within that total, Tinder's average subscribers grew 39% to 5.7 million, its average revenue per user (ARPU) rose 9%, and its direct revenue soared 49%.

Tinder's growth is fueled by the growth of its Plus and Gold premium tiers. Plus, which costs $10 a month, adds unlimited swipes, the ability to undo swipes, "super likes" to get a user's attention, a monthly visibility "boost," and a "passport" for overseas use. Gold is a $5 upgrade to the Plus tier that lets users see who "liked" them right away. The vast majority of Tinder's users are now Gold members.

Match also recently expanded Tinder's ecosystem with new "Swipe Night" interactive streaming videos. These videos are likely aimed at gaining more Gen Z users from platforms like Snap's Snapchat, Facebook's (NASDAQ:FB) Instagram, and ByteDance's TikTok, which all offer short-form video content.

Match's other growth engines include Hinge, which more than tripled its downloads year-over-year, and OkCupid, which enjoys massive growth in India and other overseas markets. These platforms, which generate most of their revenue from stable subscriptions instead of ads, enabled Match to post steady double-digit sales growth over the past year:

Period

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019*

YOY revenue

29%

21%

14%

18%

22%

19%-21%

YOY = Year-over-year. Source: Match quarterly reports. *Estimated.

Match's dependence on higher-margin subscriptions instead of lower-margin ads also gives it beefy margins. Its operating margin rose over one percentage point year-over-year to 33%, while its adjusted EBITDA margin increased by nearly one percentage point to 37%.

That expansion should continue since Match's fourth-quarter forecast implies an adjusted EBITDA margin of 38%. Wall Street expects Match's revenue and earnings to rise 18% and 19%, respectively, next year.

A person uses an online dating app.

Image source: Getty Images.

So why did Match's stock drop?

Match's growth rates look solid, but the stock likely fell for several reasons. First, Match was trading at a premium to its growth. At $60, Match still trades at nearly 30 times forward earnings -- which is significantly higher than its earnings growth. This means that any minor miss would spook the bulls.

Second, Match still faces an unresolved FTC probe regarding misleading ads on Match.com, which could result in a fine or settlement of up to $60 million. Match's parent company IAC (NASDAQ:IAC) also recently proposed to fully spin off its 80% stake in Match. Match expects to incur about $10 million in extra expenses if that deal goes through. These costs could all weigh down its earnings growth in 2020.

Lastly, Match faces fresh competition from Facebook, which recently launched a free dating feature for its users. Facebook Dating hasn't done any meaningful damage to Match yet, but it could become a long-term threat as it integrates those features with Instagram.

A great business ... but a wobbly stock

Match remains the 800-pound gorilla of the growing online dating market, and its broad portfolio of apps gives it plenty of room to expand. However, uncertainties on the horizon are keeping the bulls at bay and making it tougher to justify Match's premium valuation. Therefore, it might be prudent to wait for a bigger pullback before swiping right on this hot growth stock.