Match Just Made the Biggest Acquisition in Its History. Here's Why.

Match Group (MTCH) recently announced plans to acquire South Korean social media company Hyperconnect for $1.73 billion. By expanding outside its core online dating market, Match is pushing further into "social discovery," where people can find friends and people with similar interests. Social discovery represents a huge market opportunity and is growing even faster than online dating.

On this clip from Motley Fool Live, recorded on Feb. 10, "The Wrap" host Jason Hall, Fool analyst Nick Sciple, and Fool.com contributor Danny Vena discuss the groundbreaking move and why it's so important for the company's future.

Jason Hall: Nick, let's talk a little bit about what's going on with Match Group. They said they announced a huge deal, the biggest acquisition they've ever made. Sounds to me like I was teased. This is Match Group going Thirsty Dudes International. You pointed out that it's actually different; it's not just about dating. So tell us what's going on.

NIck Sciple: Yeah. Match obviously reported earnings last week. Last time I was on The Wrap, I was talking a little bit about that. Today, over the past 24 hours, we've had some new news. Match closed up over 7% today after announcing its largest ever acquisition. As Jason mentioned, they're acquiring South Korean social media company Hyperconnect for $1.73 billion. The deal is 50% cash and 50% shares, but Match has the option to pay up to 100% cash. Hyperconnect is a technology leader in video communication and mobile optimized AI, having developed scalable and low-cost mobile live video technology with low latency back in 2013. What does that mean?

Well, Hyperconnect has two apps. They own Azar and they own Hakuna Live. Azar is a live video and audio chat platform that can instantly translate voice and text for users that speak different languages. You go on their swiping algorithm. They call it a social discovery app where you'll communicate with folks. They have this ability, like I just said, to translate voice in real time.

It's one of the top 10 highest grossing non-gaming apps on Google Play. They also have Hakuna Live, much smaller app, a social live-streaming app.

Why is this important for Match? They called out several reasons. They're acquiring a great team; some of this is expertise in video. Video has become more important for Match over the past year. In March, they launched Plenty of Fish Live, which had a live streaming component. They've have had some success. They have implemented video basically across all of their platforms in 2020 due to the pandemic. Now, it looks like they want to expand that across all of their platforms.

Another thing they talked about in their earnings release last week is the importance they're placing on type of moderation. In safety, Hyperconnect has some technology for on-device moderation, those sorts of things. Lastly, Match has called out the importance for them to expand in Asia. So 75% of the Hyperconnect user base is in Asia, Match has the long-term goal, to drive 25% of their revenue from the Asian market pro forma after this acquisition of Hyperconnect. They're going to be getting about 22% of their revenue from Asia.

You talk from Match's company perspective -- Match CEO Shar Dubey has said that she thinks the market of helping people connect, that social discovery market that Hyperconnect plays in, she thinks that can be twice the size of the online dating market that Match currently plays is.

They're going to use some of the expertise from Hyperconnect to build out some augmented reality and virtual reality technology that she thinks is going to fundamentally change the way people connect online.

This ties in well to Match's core mission, which is to use technology to enable meaningful connections.

It plugs in lots of different ways. They can use their technology to expand their video offerings across their platforms, improve moderation, expand into Asia, and also open up a market outside of online dating, the social discovery market that they think it can expand their TAM in a really significant way.

It just adds to Match's portfolio strategy. They want to have shots on goal all over the place and how people are meeting online, and this helps them do that.

It really an exciting deal. Obviously the market is excited about it as well. Sending the shares up 7%. Match has a great track record when it comes to acquisitions. Bringing in companies even that are doing very well and supercharging their growth.

Hinge is one of that really star performers in Match's portfolio over the past several years. If you look at the data, before they acquired Hinge, their growth metrics really weren't all that great. Now, profits, I think tripled over the past year.

Really exciting for the technology that Hyperconnect brings, but also combining that with what Match has been able to historically do, bringing in valuable assets and then turning this into something that's even better than it was before. We're excited to see what comes from this included the market as well.

Vena: Nick, I wanted to ask you, one of the things that I saw in that press release talked about how Match Group expected to apply some of this technology to its own suite of apps, and having introduced more video dating options since the pandemic. I was wondering, what's your take on that? How big of a driver do you think that will be?

Sciple: We'll see. Match, as I mentioned earlier, has talked about the type of success that they've had with Plenty of Fish Live, monetizing that with a la carte offerings. They have another app I believe called Ablo, where they have some live streaming opportunities as well.

They've had some success testing, incubating, and some of their other properties. It looks like, when you listen to management comments, they're going to take that playbook in conjunction with those technological abilities that bringing in from Hyperconnect and really roll this out in a significant way across all of their properties. We'll see what happens, but I do expect video to become more and more important to how Match carries out their business, and then this Hyperconnect technology to be part of how they roll that out.

Vena: I guess the other question that comes to mind is, I've seen some of the competition talk about how they're rolling out social media sites to go beyond just the dating aspect. I think it might have been Bumble that has a LinkedIn clone for professional relationships. I was wondering if you think that's a direction that Match is going to go?

Sciple: I think one of the best pieces of investment writing that you can ever read is Eugene Wei -- has a blog post called "Remains of the Day." He wrote a post like two years ago about invisible asymptotes. One of his big observations that he makes in there is that if you look at any social platform, Facebook (META -0.52%) is a great example. Facebook started with the news feed and then added images, then adds live-streaming and shopping, and all these other things. Any social platform you look at historically adds features over time and the breadth of it grows over time, and I think Tinder, Match, or Match's portfolio across the board is a social platform in a similar way to other social platforms we've seen in the past. I expect over time to see them add more and more functionality, expand the base of services they offer in a similar way to what we've seen from lots of other social platforms in the past.

Vena: Nice. I'll mention that I'm a Match.com shareholder and have been since early 2018. Stock's more than a double, so yeah, happy to hear it.

Sciple: I think if you look out 10 years from now, it's hard to imagine a world where online dating isn't more powerful than it is today. With new couples or new young people in their 20s today, it's more than two out of three couples are formed online. I don't think that's going to turn around anytime soon. Especially, I've said this a bunch on Fool Live, real dating was canceled in 2020.

If you were a single and wanted to maintain your activity in the dating market, you had to turn online. There already was the extreme tailwind behind online dating, just the generational shift. But now you've poured some fuel on that with behavioral changes in 2020. I think 10 years from now, online dating is only going to be more important than it is today, and it already is extremely important for how young people meet potential partners today.