Match Group (NASDAQ:MTCH), a global leader in dating apps such as Tinder, Match, and OKCupid, certainly has its work cut out for it. Online dating has seen a boom in recent years as more and more lonely singles turn to their smartphones to look for love.

The company's growth has been nothing short of spectacular. In the third quarter, average subscribers grew 19% year over year to 9.6 million across all of Match's apps, while Tinder's average subscribers surged an impressive 39% to hit 5.7 million. Tinder remains the No. 1 most downloaded and top-grossing dating app worldwide, according to AppAnnie .

Revenue and net income are gaining as well. The first nine months of 2019 saw revenue increase 18% year over year to $1.5 billion, while net income increased 11% to $402.5 million. Match's share price has followed suit, breaking $90 per share and up nearly seven-fold from its IPO price of $12. This makes it one of the best growth stocks in the last four years.

However, its valuation remains high at 45 times forward earnings. Can investors look forward to continued strong growth from Match to justify that premium?

Man looking at picture of woman on mobile phone

Image source: Getty Images.

Online dating is booming

The global online dating market was worth around $6.4 billion back in 2017, and it is projected to reach $9.2 billion by 2025. That bodes well for Match as it can ride this tailwind and grow its subscriber base and revenue over time.

According to a Match survey, the online dating industry remains underpenetrated, with more than half of all singles in North America and Europe having never tried a dating product before, but habits and norms around online dating are changing significantly.

The company's most important growth opportunity lies overseas, as around two-thirds of global singles have never tried dating products. This is comparable to the U.S. and Europe prior to 2012 (when Tinder first launched). As countries such as India and South Korea become more connected, and with rising wealth making smartphones more affordable for consumers worldwide, it's highly likely that more and more singles will embrace dating apps as a socially acceptable dating practice, to be encouraged rather than shunned.

Subscriber Numbers v3

Source: Match's Quarterly Filings; Author's Compilation

In fact, from the graph above, this seems to hold true -- international subscriber numbers surpassed those in North America for the first time in the second quarter of 2019, and this trend accelerated the following quarter.

Heavy debt load

While Match has been consistently profitable since its IPO, the company has had to shoulder a huge debt burden. The company has $1.6 billion of debt as of Sept. 30, 2019, compared to a cash balance of $366 million, and finance charges alone amounted to $88 million in the trailing 12-month period (4.5% of revenue).

Match, however, does generate consistent free cash flows, with that figure topping $350 million for the first three quarters of 2019. Capital expenditures were only $30 million during the same period, and that difference should help the business to reduce its debt burden and related expenses over time, an important consideration as you'll see below.

Spin-off from IAC

IAC (NASDAQ:IAC) recently announced a proposed spin-off of Match from its remaining businesses. This transaction is expected to close in the second quarter this year and will allow Match to be a fully independent entity with better strategic flexibility. The transaction does, however, load a big pile of debt ($2.2 billion) onto Match's balance sheet, resulting in a net debt position for Match of $3.5 billion and a net debt to trailing 12-month EBITDA multiple of 4.2x.

Match has a good track record of deleveraging, and management targets bringing that net debt-to-EBITDA figure below 3.0x by the end of 2021. It's my belief that the company should be able to deleverage successfully as it is generating healthy cash flows, while tailwinds for the online dating industry power the company's continued growth.

Match should, therefore, be able to live up to expectations, but investors would be wise to monitor the company's financial position every quarter to confirm that the company is indeed deleveraging and expanding its international reach following the separation from IAC.