Please ensure Javascript is enabled for purposes of website accessibility

Down 20%, Is It Time to Buy Match Group?

By Brett Schafer - Mar 28, 2021 at 7:50AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of the dating app conglomerate are trading at a discount to their all-time high.

Shares of Match Group (MTCH -4.43%) have had a rough couple of weeks. After peaking above $170 per share in early February, the stock closed on March 26 at $138.27, a 20% haircut in a little over a month. Shareholders are no doubt feeling some pain, but a sell-off like this can be beneficial for anyone looking to snap up shares at a discount. 

Here's how investors should think about Match Group stock after the recent decline.

a Person looking at a dating app and deciding whether to like a profile.

Image source: Getty Images.

What happened

Despite the sell-off, nothing material has changed for the business. In fact, the last major update -- Match Group's decision to acquire Hyperconnect -- was what drove the stock to all-time highs in the first place. 

All things considered, this sell-off looks like it's just normal volatility that tends to come with any high-growth company. And even with the 20% decline, shares are still up 30% since last summer's spin-off from Interactive Corp (IAC -3.66%), so there's no reason for any long-term shareholders to panic here.

The business looks fine

Taking a look under the hood, Match grew revenue 17% in 2020 to $2.4 billion, even with the pandemic putting a damper on the overall dating market. It also continues to generate lots of free cash flow with almost $750 million falling to the bottom line last year alone. With a consistent 30%-plus free cash flow margin and double-digit sales growth, Match Group is doing exceptionally well at the moment.  

We are also seeing the emergence of new brands outside of its flagship Tinder app. Tinder still produces the majority of Match Group's revenue and saw 18% sales growth last year, but some of the company's investments in other brands are now bearing fruit. For example, Hinge, a relationship-focused app that Match acquired in 2019, saw 63% growth in downloads while sales tripled last year.

Lastly, the acquisition of Hyperconnect looks promising. The South Korean company generated around $200 million in sales last year and is guiding for 50% growth in 2021. Its flagship app Azar has been downloaded 500 million times and allows users to meet and video chat with random people around the globe. Match is acquiring the business for about $1.7 billion, or around eight times its trailing 12-month sales. If Match Group can successfully integrate Hyperconnect under its umbrella, raise its cash-flow margin to 30% like the rest of its brands, and help it sustain high top-line growth, the acquisition price may look like a bargain a few years from now. 

Valuation

Even with the 20% sell-off, Match Group still trades at a trailing price-to-sales (P/S) ratio of 15.6 and a price-to-free-cash-flow ratio (P/FCF) of 49.8. Those are sky-high multiples relative to the broad market. However, if you believe Match Group can put up approximately 15% top- and bottom-line growth over the next few years and beyond (2021 guidance calls for 17% revenue growth), a premium valuation like this is much more palatable.

So is the stock a buy?

It is rare to consider a company trading at 50 times free cash flow a screaming buy, and Match Group is no exception here. If you're already a shareholder, there's no need to fret as a 20% decline is within the normal range of volatility, especially given the events of the past year. However, if you like Match Group's business prospects over the long term but still think the stock commands too high a premium, you can start your position with a small number of shares with plans to buy more if the stock falls further.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Match Group, Inc. Stock Quote
Match Group, Inc.
MTCH
$71.79 (-4.43%) $-3.33
IAC/InterActiveCorp. Stock Quote
IAC/InterActiveCorp.
IAC
$79.70 (-3.66%) $-3.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
334%
 
S&P 500 Returns
117%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.