Like some other pandemic trends, online dating apps are enjoying increased traffic as many people shelter at home. At first, this seems counter-intuitive. Why are people talking to each other on dating apps without the possibility of a follow up in-person date? Is that not the point?
With very few coffee shops, restaurants, bars, and clubs open, for many regions, there are almost no alternatives to meeting people online. The pandemic seems to have enhanced the appeal of online dating by simply removing most alternatives. Many of us still want to socialize. Thanks to coronavirus, dating apps now more than ever are a convenient way to fill the void.
Today, one out of three relationships start online and that figure may continue to grow with strong sector tailwinds. Younger generations are more likely to use dating applications (are more likely to pay for them), which should provide sustainable growth for years to come if a company can meaningfully connect to interested users.
Revenue for the online dating sector is already pushing $2 billion with an annual growth rate of 9.3% expected for the next five years. That is more than double projected global GDP over the same timespan. User penetration is under 3% of the human population, offering an extensive runway of new customers to introduce. This is just one of the reasons why I like Match Group (NASDAQ:MTCH) for investors looking for long-term stock soulmates.
Investing in this trend
From a stock perspective, Match is the perfect way to invest in continued online dating strength. It offers investors the perfect blend of growth and value. Its 17% revenue growth this past quarter makes the roughly 40 price to earnings ratio (P/E) palatable. The dating company beat the S&P 500's sales growth which actually declined 1.4% during the same period. Based on that outperformance, a valuation premium of roughly 2 times over the market is more than reasonable.
To complement good value: There is market concentration in this young and growing field. Match Group is the best example.
As of this year, the company featured three of the top five dating applications in the industry. Out of Match Group's portfolio of products, Tinder is number one in the nation with nearly 8 million American users, while Plenty of Fish and Match.com enjoy third and fifth place with roughly 4 million and 2 million users respectively. In the midst of the pandemic-induced economic chaos, this public company actually grew paid subscribers while some industries ground to a screeching halt.
The main competitive challenge to Match Group enjoying a concentrated market share long into the future is not the pandemic, but Facebook (NASDAQ:FB). The tech giant has been aggressively pursuing an entrance into online dating. Facebook's 2.6 billion person user base is intimidating. So far, Match group's growth and forecasts offer confidence they can overcome this new threat. Regardless, whenever a deep-pocketed company like Mark Zuckerberg's attempts to compete, investors should take note.
CEO Sharmistha Dubey and her talented team led Match Group to a dominating competitive position in online dating. There are no signs of this company's growth slowing. User adoption is still in its early innings and young folks are using its services more and more. It is not very often you find a company with such a large piece of such a promising sector. Match Group's stock meets that rare description and I will certainly be swiping right.