The start of 2022 has pretty rough for technology stocks and investors of internet-focused companies. The Nasdaq-100 index is down almost 15% year to date, with many stocks in the index down at least 30% (and some even more than 50%) just in the last few months. Match Group (MTCH -0.84%), an online dating conglomerate, is one of these internet stocks that has taken a beating, with shares down 29.2% so far this year.
But a close look at Match Group's business fundamentals and its potential to thrive in a post-pandemic world suggests that this recent drawdown will mostly just provide long-term investors with the opportunity to scoop up some shares on the cheap. Here's why investors should consider buying Match Group stock right now.
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Solid 2021 results
In 2021, Match Group put up solid top- and bottom-line results as many parts of the world came out of the 2020 pandemic lockdowns. Revenue grew 25% year over year to approximately $3 billion, and operating income grew 14% to $852 million. As you can see from these two metrics, Match Group has phenomenal unit economics, with a 28.4% operating margin even while it is reinvesting heavily into growth initiatives like marketing and research and development. Over time, as the business matures, investors should expect the operating margin to expand as well.
Match Group owns over a dozen online dating services, but the two most important are Tinder and Hinge. Tinder is the largest dating app in the portfolio, generating $1.65 billion in revenue last year, up 22% year over year. Hinge is a lot smaller than Tinder, generating only $197 million in revenue last year, but it is the fastest-growing, doubling sales from 2020 and growing revenue more than six times from 2019 when the app only generated $31 million in revenue. We shouldn't expect growth at Tinder to slow down anytime soon, but investors should hope that Hinge continues to grow at a rapid pace and make up more of this business over time.
A dwindling pandemic is bullish
People staying away from social interactions, whether by choice or mandate, was beneficial to almost every digital company. However, this wasn't true for Match Group, seeing as its whole purpose is to serve as a matchmaking service for people to meet in person. If you aren't going out on New Year's Eve, there's no point in paying money to an online dating service to help you find a date. Many people made the choice to stay in more often in 2020 and 2021 because of the COVID-19 pandemic, which was a headwind to Match Group's business.
This should hopefully start to change in 2022, at least in areas with more relaxed pandemic regulations like the United States. Over a multi-year time horizon, if COVID-19 case and death counts continue to fall around the globe, Match Group should get more and more demand from that incremental user who had chosen to stay away from in-person events over the past few years.
What's amazing is that you can barely tell the pandemic lockdowns happened when looking at Match Group's financials. In 2020, revenue actually grew 17% compared to 2019, and this was during a time period when many people were afraid to meet in person. That shows the power of the secular trend that is online dating.
Valuation is very attractive if you take a long-term view
As of this writing, Match Group stock trades at a market cap of $27.5 billion. In 2022, it is guiding for 15% to 20% revenue growth. Guidance is slower than for 2021 because management is expecting foreign currency headwinds and at the time was being conservative about any negative impacts from the omicron variant. While foreign currency can be unpredictable, the COVID-19 impact is very predictable: just look at case counts. If worldwide case counts continue to fall, there's a good chance Match Group exceeds its revenue guidance this year.
Let's say Match Group grows its revenue by 20% in 2022. That would mean $3.6 billion in annual revenue. At the same operating margin as 2022 (which is what management is guiding for) of 28.4%, that would be $1.02 billion in full-year operating income or a forward price-to-operating (P/OI) income of 27. This is slightly above the market average, which at first glance might make you think Match Group stock is expensive. But if the company keeps up its phenomenal top-line growth and maintains or expands its profit margins, this P/OI will come down rather quickly, which is why I think Match Group stock can be a great buy at these prices.
