What happened
Shares of online dating conglomerate Match Group (MTCH 0.17%) were up 14.2% in September, according to data from S&P Global Market Intelligence. The company, which owns some of the most popular dating apps in the world, could see a huge reduction in expenses after the latest legal rulings on Apple's and Google's mobile application stores.
So what
Match Group owns popular dating apps like Tinder, Hinge, and OK Cupid. The company makes money by charging users for upgraded features or subscription products for these dating marketplaces. Since these payments are almost all made through a mobile device, Match Group has had to pay as much as 30% of its revenue out to Apple and Google, who force developers to use its payment system and blocks them from sending users outside the app store to pay. However, that may be changing after a California judge ruled that Apple is not legally allowed to block a company like Match Group from avoiding its payment toll.
Image source: Getty Images.
How would this help Match Group? Quite simply, by improving its profit margin. Previously, around 30% of all its revenue was paid to the app store owners. If Match Group can convince users to evade the app store tolls, those expenses could diminish significantly, helping improve Match Group's profit margin. With such a high step-change in profit margin incoming, this news is likely the reason Match Group stock did so well in September.
What's impressive is how strong Match Group's profit margin was even with the high app store tolls. The company's operating margin is routinely north of 30%, meaning that without the app store fees the company could have a 60%+ profit margin, which would be one of the best in the world. It is not likely that the company will be able to escape all of these fees, but it illustrates the incredible unit economics of dating apps.
Now what
After the September rise and a recent October sell-off, Match Group trades at a market cap of around $42 billion. With only $2.66 billion in trailing-12-month revenue and $3 billion projected for all of 2021, some investors might think Match Group stock is expensive at the moment. But with a fast-growing business (27% revenue growth last quarter) and the potential for margins to expand significantly over the next few years, there's a lot to like about this stock at the moment, even at a market cap north of $40 billion.
