Match Group (NASDAQ:MTCH), the online dating leader that owns Tinder and other apps, went public at $12 per share five years ago after being spun out from IAC/InterActiveCorp. IAC recently completed its full separation of Match.
The stock has risen more than eleven-fold since then, as Tinder's growth lit a fire under the company's revenue and profits. Match's annual revenue rose from $888 million in fiscal 2014 to $2.1 billion in 2019, representing a compound annual growth rate (CAGR) of 18.8%.
Its robust growth continued throughout 2020, even as the COVID-19 pandemic rocked the broader markets. In the first nine months of the year, Match's revenue rose 16% year-over-year to $1.74 billion as its adjusted EBITDA also rose 16% to $651 million. Analysts expect its revenue and earnings to rise 16% and 9%, respectively, for the full year.
But looking further ahead, will Match maintain that momentum over the next five years? Let's analyze the tailwinds and headwinds to see where this growth stock could be headed.
The past five years
The biggest catalyst for Match over the past five years was its monetization of Tinder. In 2015, Match launched Tinder Plus, a premium tier that let users undo swipes, swipe overseas, use "Super Likes" to get a user's attention, and boost the visibility of their own profiles.
In the U.S., Tinder Plus costs $10 per month for users under the age of 30, and $20 per month for users over 30. Those prices vary across overseas markets, and are generally lower in developing countries.
In 2017, Tinder launched Gold, a $5 per month upgrade (in the U.S.) for Plus users that added curated "top picks" and the ability to see who liked their profiles to start chatting right away. Last year, Match claimed over 70% of Tinder's subscribers had upgraded to the Gold tier.
More members, more tiers?
The Plus and Gold upgrades caused Match's revenue growth to accelerate over the past five years. Its audience also continues to grow: Its total paid subscribers rose 12% year-over-year to 10.8 million last quarter. Within that total, Tinder's paid subscribers grew 16% to 6.6 million.
However, Match's average revenue per user (ARPU) could eventually peak as it saturates Tinder's subscriber base with Gold upgrades. That's why Match recently started testing Tinder Platinum, which includes all the Plus and Gold perks and adds two new features: "Priority Likes", which take precedence over Likes and Super Likes from lower tiers; and "Message Before Match", which lets users attach short messages to their Super Likes.
Match is currently testing out Tinder Platinum in ten markets, and it uses a "dynamic" pricing system based on a user's gender, age, and sexual orientation. Match will likely launch Platinum worldwide in the near future, and it could boost Tinder's ARPU and tether users more tightly to its ecosystem.
Expanding Tinder's ecosystem and investing in non-Tinder apps
Over the past two years, Tinder expanded its ecosystem with new features like its "Swipe Night" interactive videos. Match also recently launched the text and video chat app Ablo, and it could extend its features to Tinder and its other apps in the near future.
Therefore, we could easily see Tinder's platform expand into a mini-social network over the next five years. Doing so could shore up its defenses against Facebook, which rolled out its free competitor, Facebook Dating, worldwide over the past year.
Match is also expanding its portfolio by buying other dating apps. Its latest acquisitions include POF (Plenty of Fish) in 2015 and Hinge in 2018. Hinge is currently one of Match's fastest-growing apps, posting 82% year-to-date growth in downloads through the end of the third quarter with "outstanding progress" in its monetization.
Hinge, POF, and Match's other non-Tinder brands -- which include Match.com, OKCupid, Meetic, and Ship -- grew their combined direct (non-advertising) revenue 23% year-over-year last quarter. By comparison, Tinder's direct revenue rose just 15%.
That growth indicates Match will continue to expand Hinge and its other stronger apps, and possibly acquire additional dating apps, to widen its moat and reduce its overall dependence on Tinder over the next few years.
A resilient business model with room to grow
As I've recently explained, Match is a great long-term play on Gen Z and Millennial consumers and a recession-resistant stock, since it generates most of its revenue from sticky subscriptions instead of ads, and economic crises have historically boosted the usage of online dating services.
The global online dating market could still grow at a CAGR of 8.3% between 2019 and 2025, according to Valuates Reports. Assuming Match remains the world's top online dating company, its annual revenue could hit $3.4 billion by 2025 if it merely keeps pace with the broader market.
Based on all those facts, I'm confident Match's stock will continue growing over the next five years.