Last September, Facebook (NASDAQ:FB) launched Facebook Dating in the U.S. after testing the feature in other markets for a year. Earlier this year, Facebook upgraded the feature with video calls to let users go on "virtual" dates as the COVID-19 crisis kept more people at home.

Facebook's expansion into the online dating market initially spooked investors in Match Group (NASDAQ:MTCH), which owns popular dating apps like Tinder, Match, PlentyOfFish, OurTime, OkCupid, and Hinge. But over the past 12 months, Match's stock advanced more than 40% as those concerns waned.

Let's see why investors should still consider Match a better online dating stock than Facebook, and why Match's stock could still have more room to run.

A woman tries to hide from a blind date holding flowers.

Image source: Getty Images.

Tinder has a stickier paid ecosystem

Match established a first mover's advantage in online dating apps over the past decade. Tinder, which was launched eight years ago, streamlined the entire process with swipes and became the highest-grossing app in the world last year, according to App Annie's annual "State of Mobile" report.

Unlike Facebook, which generates most of its revenue from ads, Match generates most of its revenue from paid subscriptions -- which are stickier and more reliable than ad revenue.

A woman uses a dating app on a phone.

Image source: Getty Images.

Match upgraded Tinder with the Plus tier in 2015 and Gold tier in 2017. Tinder Plus -- which costs $10 a month for users under 30 (and $20 a month for older users) across most markets -- lets users undo swipes, swipe overseas, use five "super likes" to get a user's attention, and "boost" the visibility of their profiles.

Tinder Gold is an upgrade for Plus that adds curated picks and the ability to immediately see who likes you for an extra $5 a month for most users. Last year, Match announced over 70% of Tinder's subscribers had upgraded to its Gold tier.

Tinder's total subscribers grew 18% annually to 6.2 million last quarter. Match's total subscribers, including Match.com, OkCupid, and other platforms, grew 11% to 10.1 million. Tinder's direct revenues, which come from subscriptions and a la carte upgrades, rose 15% annually, easily outpacing the 9% direct revenue growth across Match's other platforms.

Facebook isn't causing Tinder's slowdown

If we track Tinder's growth in subscribers and direct revenue over the past year, we see its growth is decelerating:

Metric

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Growth in subscribers

39%

38%

36%

28%

18%

Growth in direct revenue

46%

49%

39%

31%

15%

Source: Match Group.

It's tempting to believe Tinder's high-growth days are over and newcomers like Facebook are catching up. However, instead of competitive headwinds, Match attributed the deceleration to Tinder's global exposure to the COVID-19 pandemic, which curbed signups and spending in high-growth markets like India and Brazil.

During last quarter's conference call, CEO Shar Dubey declared Tinder's business had "bottomed out" in April, and that the app "should definitely start accelerating growth again" by the fourth quarter of 2020. Match has also started testing a third paid tier for Tinder, called Platinum, which Dubey claims will "provide additional value beyond Gold by increasing users' chances to get more matches and more conversations."

In addition, Match has been expanding Tinder's video ecosystem with Swipe Night social videos, video profiles, and one-on-one chats. All these efforts will likely increase Tinder's stickiness, boost its revenue per user, and widen its moat against Facebook, Bumble, and other competitors.

Facebook is spinning too many plates

On the surface, Facebook has all the tools to weaken Match's grip on the online dating market. About 3 billion people use Facebook's family of apps every month, its social network is a natural foundation for dating services, and it's offering its tools for free.

However, Facebook is also trying to expand its ecosystem in myriad directions -- including the e-commerce, digital payments, streaming video, short video, video conferencing, enterprise collaboration, and virtual reality markets. Balancing all those initiatives takes a lot of effort, and will likely prevent Facebook from leveraging all its strengths to crush Match's family of paid dating apps.

Furthermore, Facebook's own brand is generally associated with family and friends instead of online dating, and its privacy and security shortcomings could prevent users from opting into its dating services. That's probably why Facebook hasn't revealed any user numbers for Facebook Dating -- and why it didn't mention the feature at all during its past two conference calls.

Swipe right on Match

Facebook and Match are both great growth stocks for long-term investors. However, investors looking for the "best in breed" play on the online dating market -- which research firm ReportLinker estimates will grow at a compound annual growth rate of 8.3% between 2019 and 2025 -- should simply stick with Match.