After the market closed on Feb. 9, Match Group (MTCH -0.12%) announced that it was acquiring the South Korean social discovery company Hyperconnect for $1.725 billion. Match Group plans to embed the company's video and audio technology into its existing portfolio of brands and also hopes to use this deal to get a foothold in the South Korean market with its 50 million citizens. Here are some more details on the acquisition and how Hyperconnect fits into Match Group's business strategy.
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What is Hyperconnect?
Hyperconnect has two flagship products. One, Azar, is an app that allows users to meet and video chat with people around the world who have similar interests to them. The idea is not groundbreaking, but the app has 500 million cumulative downloads and was the ninth highest-grossing non-gaming app on Google Play in 2020. Azar brings in the majority of Hyperconnect's revenue.
The other app is Hakuna Live. Launched in late 2019, it's an interactive service that allows up to four people to live-stream through a single split-screen video to the app's users. Unlike Azar, which facilitates one-on-one interactions, Hakuna Live is similar to traditional social networks that give users tools to broadcast themselves out to the world. The app passed the 10 million downloads mark in March 2020, and according to Match Group's investor presentation, is "rapidly scaling users and revenue."
Details of the deal
The acquisition is supposed to close in the second quarter, and that $1.725 billion price will be paid half in Match Group stock and half in cash. According to the investor presentation, Hyperconnect's revenue grew over 50% to more than $200 million in 2020, and the company is profitable. Beyond those numbers, Match Group did not give any details on the company's financials, but hopefully, management will release more information as the deal gets closer to closing.
At a little more than $200 million in annual sales, it looks like Match Group is acquiring Hyperconnect at a valuation of a bit more than eight times sales, which should compress to less than six times sales if that 50% sales growth continues in 2021. Match Group CFO Gary Swidler mentioned on the deal's investor call that he thinks Match Group can get Hyperconnect to 20% profit margins relatively soon, but management isn't worried about short-term profitability. Taking all this into consideration, it looks like Match Group is not overpaying, nor is it getting the South Korean company at a bargain price either.
How Hyperconnect fits into Match Group
Hyperconnect looks like a solid business on its own, but how does it fit into Match Group's portfolio of online dating brands? Well, first off, a swiping-based social discovery app is not all that dissimilar to Tinder, Match Group's top app, and should have similar user dynamics. It is not like management acquired a railroad or something totally outside its expertise. Azar and Hakuna Live also give Match Group an instant base of users in South Korea, a country with a large digitally native population but one in which Match's existing products have yet to gain much traction. Executives compared this deal to the company's 2015 acquisition of Eureka, which helped it expand its footprint in Japan.
Lastly, Hyperconnect is a leader in live video and audio technology, and Match Group management said it wants to transfer some of that expertise to its existing brands. This could mean improved live video experiences for Tinder, Hinge, Match.com, and other online dating platforms that Match Group owns.
At first glance, it may seem strange that Match Group is acquiring a South Korean social discovery app. However, when you consider the potential for this deal to get it cooking in the South Korean market and the boost that Hyperconnect's video technology expertise could offer its existing brands, this pairing starts to look like an excellent match.
