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Since going public back in 2015, Match Group (MTCH) has been a great investment. Solid growth across its suite of dating platforms -- especially the ever-popular Tinder app -- helped the company to pull in over $450 million in revenue last year. During the summer, the share price was sitting at all-time highs of close to $86 a share.
However, shares of Match Group have pulled back somewhat recently as the company faces numerous internal and external challenges. Last week, Match Group reported its third-quarter results for 2019.
Here are some of the key takeaways from the report and some thoughts on what the future looks like for the company.
The earnings report
For the last quarter, Match Group pulled in revenue of $541.5 million and earnings of $0.51 a share, easily beating most analyst expectations for the quarter and chalking up solid growth of 22% and 16%, respectively.
However, investors were less pleased with the company's outlook for the next quarter. Match Group said that it expects Q4 revenue of between $545 million and $555 million, which missed the analyst consensus of $559 million. This lowered outlook was attributed in part to costs related to the potential spinoff by IAC (IAC), which owns 80% of outstanding shares in the company. (More on this below.)
There were some other good highlights to report from the quarter beyond the bare financials, specifically with Tinder.
In the earnings call, the app that introduced the term "swipe right" into the modern lexicon recorded year-over-year revenue growth of 49%. By the end of 2019, it expects to have added approximately 1.6 million average subscribers over the course of the year -- the highest-ever total.
User engagement has improved in the app, too, with the average dater active for more than five days out of every week. Retention is also strong, with an average of 85% of users returning to Tinder in the next month, while the average revenue per user (ARPU) for Tinder users continues to grow, up 71% from three years ago to sit at close to $0.59.
A key goal for the company recently has been expanding its services into new international markets in order to combat potential saturation in the U.S. In the earnings call, CEO Mandy Ginsberg noted that, though Tinder is the highest-grossing lifestyle app in roughly 100 countries around the world, "it remains very underpenetrated in virtually all of them. In particular, large markets such as Japan, India, and South Korea."
This points toward a clear direction for the company in its growth efforts over the next few years.
InterActiveCorp, more commonly known as IAC, the American holding company that owns an 80% stake in Match Group, last month submitted a proposal to members of Match's board of directors to fully separate Match from IAC. At the time, IAC CEO Joey Levin stated, "IAC is confident that the proposal communicated to the Match Group special committee provides strong footing for Match Group to begin its journey as a thriving, independent company."
The company says itself that it "builds great companies," and has created 10 public businesses to date, including Expedia, Ticketmaster (now part of Live Nation Entertainment), TripAdvisor, and Trivago.
In the earnings report, Match highlighted that it expects to incur roughly $10 million in expenses in the next fiscal year due to costs related to this planned divestiture, partially the reason why the outlook was so low.
Investors should not be overly concerned with these plans to spin off Match given IAC's track record in doing the same with other companies quite successfully. While there may be some short-term volatility associated with the divestiture, there should be no material impact upon the fundamentals of the company in the long term.
But, first, we just have to wait and see if the board will accept the proposal.
Though little reference was made to competitors in the landscape during the earnings call, it's worth noting that the field is becoming increasingly crowded. Bumble is perhaps one of the most high-profile competitors to the Match Group and Tinder -- founded by Tinder co-founder Whitney Wolfe Herd.
Of course, Facebook has also unveiled its own dating platform, inventively titled Facebook Dating. Launched in September, the service isn't available yet in all major markets (for example, Europe) but has been released in Canada, with Ginsberg stating on the earnings call that "we've seen no impact in the Canadian market" and that the company is "feeling good from a competitive aspect at this point, but we'll continue to watch."
Match Group is currently building defenses to tackle future competition, with new features to differentiate its product. Case in point: It will be creating its own original content, including Swipe Night -- an in-app first-person, five-minute interactive video series that attracted "millions" of users, according to Ginsberg.
Plus, who would ever trust Facebook with their dating life data?
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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Match Group and Facebook. Read the full disclosure policy here.