It looks like people can't get enough of Match Group's (NASDAQ:MTCH) products. The owner of online dating properties including Tinder, Match.com, and Hinge released another quality earnings report on May 5, beating analyst expectations and reiterating revenue guidance for growth in the mid to high-teens for 2021.
Despite headwinds from the COVID-19 lockdowns, especially in countries like India that are still facing a huge surge in cases, Match Group continues to grow its dating business and is about to enter a new industry, social discovery. Here are three reasons investors are optimistic about Match Group stock.
1. Tinder is doing well even during the pandemic
Match Group owns dozens of dating apps, but Tinder is the most important to the company, currently contributing over half of its annual sales. The most popular dating app in the world had just under 7 million paying subscribers in Q1, up 15% year over year, with average revenue per user (ARPU) up 4%. This combination of subscriber and ARPU growth led to direct revenue growth of 18% at Tinder in Q1.
In its quarterly earnings letter, management said Tinder has the widest geographic exposure and the highest percentage of sales coming from the purchase of "a la carte" extras -- like a Tinder "boost," which temporarily bumps up the prominence of your profile --among the apps it owns and thus COVID-19 hit Tinder sales the hardest. Looking at the chart provided in the Q1 letter (below), North America and Western Europe a la carte purchases have grown since before the pandemic, while all other regions are trending in the wrong direction.
Overall, Tinder has shown its resiliency as the top dating app in the world despite COVID-19 headwinds, and should continue to grow subscribers and sales over the next few years as more people look online to find a romantic partner.
2. Hinge is growing
Hinge, a dating app bought by Match Group in 2019, has slowly ascended to become the third most downloaded dating app in North America, according to data provided by the company. Up from the 13th spot in 2018, the relationship-focused app is quickly becoming one of Match Group's most valuable assets. It tripled revenue in 2020 and is "on pace to double revenue in 2021," according to the company, which did not provide numbers with that statement. Hinge is only in North America at the moment, but Match Group said it plans to start rolling out the app internationally in 2022 once it finalizes its monetization strategy.
The future is clearly bright for Hinge. Over the next few years, it should start to meaningfully contribute to Match Group's top-and bottom-line growth.
3. It's going beyond dating
Match Group is slated to close its planned acquisition of South Korean company Hyperconnect sometime in Q2. The purchase is for $1.725 billion and will bring two Asia-focused "social discovery" apps, Azar and Hakuna Live -- which match people for more than just dates -- under Match Group's umbrella. On its own, the Hyperconnect acquisition looks solid, seeing as the company generated $200 million in 2020 revenue, which was up 50% from the prior year. It will also help Match Group expand into the South Korean market, where it has historically struggled to gain traction with its other apps.
Management is touting the Hyperconnect acquisition as a way for the company to expand outside of dating to a broader "social discovery" category. This means matching people and groups not just for romantic relationships, but for interest groups and friendships as well. It is a nascent category, so there is a lot of uncertainty around whether social discovery can go mainstream, but if Match Group can execute as it has with dating, social discovery could drive meaningful growth for the company.
Is the stock a buy?
At a market cap of $37 billion, Match Group trades at a price-to-sales (P/S) ratio of 13.5 and a forward price-to-earnings (P/E) ratio of 58 based on the low end of its 2021 guidance. This is expensive compared to the S&P 500 index, which trades at an average forward P/E of 21.7, and investors should pay attention to the valuation as it could lead to some volatility. But there are reasons to be optimistic about this business going forward.