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Even With FTC Challenge and Leadership Change, Match Is Still Worth Considering

By Prosper Junior Bakiny – Feb 16, 2020 at 9:13AM

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Here's why investors might want to swipe right on Match.

Match Group (MTCH), the company behind the popular dating app Tinder, has been making a lot of waves of late, and not always for good reasons. Last year, the U.S. Federal Trade Commission (FTC) launched a lawsuit against Match, alleging that the company "used fake love interest advertisements to trick hundreds of thousands of consumers into purchasing paid subscriptions on Match.com."

The FTC also alleged that Match lured customers onto its website with "guarantees" that they would find what they were looking for and made it difficult for some users to cancel their paid subscriptions. Match said the lawsuit contains "completely meritless allegations ... The FTC has misrepresented internal emails and relied on cherry-picked data to make outrageous claims and we intend to vigorously defend ourselves against these claims in court."

More recently, Match CEO Mandy Ginsberg announced she would step down, and her successor, Sharmistha Dubey, the company's president, will take over on March 1. The company noted that "Ginsberg's decision to resign was not the result of any disagreement with the Company on any matter relating to the Company's operations, policies or practices" and she will continue to advise the company for a year after stepping down as CEO.

The headlines have given investors a lot to think about, and the stock remains one worth considering.

A person holds a smartphone on whose screen is displayed the picture of a woman, surrounded by drawn hearts

Image source: Getty Images.

Tinder continues to make headway

During the fourth quarter, Tinder was once again Match's main growth engine. The popular app hit 5.9 million average subscribers during the quarter, a 36% year-over-year increase. On the back of strong subscriber growth, Tinder's direct revenue (revenue from users, not ad revenue) grew by 39% compared to the prior-year quarter. For the full fiscal year 2019, Tinder's direct revenue was $1.2 billion, 43% higher compared to the fiscal year 2018. It is also worth noting that Tinder became the highest-grossing mobile app in the world last year.

The company's total revenue in the fourth quarter was $547 million, up 20% year over year. For the full year, total revenue jumped 19% to $2.1 billion.

Match is looking to maintain strong momentum with its crown jewel. During the company's fourth-quarter earnings conference call, Ginsberg outlined several efforts for Tinder. First, the company will focus on "trust and safety" by introducing new features, including an app called Noonlight, which gives Tinder users the option to enter details about their encounters with other users (directly on the Noonlight app) such as the place and time of a meetup. Noonlight also has a location-tracking feature and allows users to trigger a security alarm that will result in someone from Noonlight reaching out to the person and alerting emergency responders if needed. 

Tinder also introduced a photo verification feature to allow users to verify that they are the person in their profile picture. Verified users have a blue checkmark on their profiles. Match hopes that these features will help its users (particularly its female users) feel safer.   

Furthermore, Match is looking to increase user engagement on Tinder. The company is doing this by introducing more things for users to do on its popular app. For instance, Match introduced "Swipe Night" on Tinder, an interactive video series aimed at Generation Z, the youngest daters, who Match says make up half of Tinder members. The company describes it as "a first-person, apocalyptic adventure where at key turning points, Tinder members decide what happens ... next. And their choices dictate more than just the story; they also impact who they match with and what they will chat about once the epic journey ends. " Episodes of "Swipe Night" aired in October of last year, but given the success of its initial launch, Match is planning to roll out "Swipe Night" in 10 markets in Europe and Asia during the first quarter. 

Increased engagement on Tinder could help Match monetize its top app even more. Note that during the fourth quarter, the company's average revenue per user (ARPU) increased by an unimpressive  $0.01 (1.7%) year over year to $0.59.

The hope is that these changes will help Tinder retain its current customers, attract new ones, and increase overall user experience and engagement, which could help Match's top line continue on its upward trajectory. 

Other growth opportunities

Of course, Match can count on websites and apps other than Tinder to drive growth. For instance, the company's OkCupid has been making strides of late, both in North America and in international markets, achieving 10% year over year growth in its number of users in eight consecutive quarters. Match is looking to keep that momentum going across the range of its services in international markets. And with the massive market opportunities abroad, this plan could help Match keep its growth story alive.

Not a cheap stock

Match is currently trading at 42.9 times last year's earnings and 31 times earnings estimates. The company's shares are also a bit expensive when taking future earnings growth estimates into account, with its price-to-earnings growth (PEG) ratio currently being 1.57. These valuation metrics don't make this tech stock a steal. Still, investors should certainly keep an eye on Match as it improves user experience on Tinder and continues to grow in international markets. 

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Match Group. The Motley Fool has a disclosure policy.

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