A few weeks ago, rumors were floated that the online dating conglomerate Match Group (MTCH 1.40%) could be a potential acquisition candidate, with speculation pointing to the social media giant Meta Platforms (META -1.64%) as a possible buyer. While there hasn't yet been any proof to substantiate this rumor, let's see whether this would be the right move for Meta and if it's even truly feasible.

Person using smartphone with digital network graphics surrounding it.

Image source: Getty Images.

What does Match Group do?

Before diving into how this acquisition could potentially benefit Meta, it's probably best to understand what Match Group actually does.

Match Group is the leading provider of online dating apps globally. The company is home to popular brands like Tinder, Hinge, and Match.com, but also continues to add more niche apps like Stir, which is targeted toward the 20 million single parents in the U.S. 

At Match Group, dating apps benefit from being able to operate independently of one another while also having access to the expertise and best practices of other successful brands under the company's umbrella. Additionally, back-office costs are offloaded to the parent company, which means each app can be hyperfocused on the task at hand -- growing users and revenue. And that's exactly what they've done. 

Led by its flagship app Tinder, today, Match Group touts just under 100 million monthly active users and 16.3 million payers across all of its brands. That's up from 60 million and 5.9 million five years ago. While part of this growth is certainly attributable to great execution, Match Group has also been in the right place at the right time as online dating has become the number one way heterosexual couples meet in the United States. In fact, since 2007, the percentage of couples in the U.S. that met online has grown from less than 20% to north of 40%! 

Why should Meta Platforms buy Match Group?

In general, online dating services function a lot like Meta's core family of apps -- Instagram, Facebook, and WhatsApp -- in that the larger the platform grows, the more prominent the network effect becomes. In other words, as more and more users join a certain app, that app's value is enhanced by their presence, making it more attractive to the next potential user. In turn, the cost to acquire future customers shrinks, increasing the app's profitability at scale. Simply put, it's a wonderful business model.

One significant difference, however, is the revenue source. Although Match Group generates some advertising revenue from its various brands, the lion's share of its sales comes from transactions in the form of subscriptions or a la carte purchases. Meta, on the other hand, generates the bulk of its revenue from advertising. While Match Group's revenue will likely always be more transactional simply due to the nature of online dating (higher intent, less browsing), there'd certainly be some room for Meta to leverage its expertise and bolster Match Group's advertising revenue. 

Then there's the metaverse angle. Given the company's name change, Meta has now quite obviously altered its focus on building out its version of the digital world. And as it turns out, Match Group has a metaverse component of its own. Though it's still early days, the development team at Match Group's recently acquired Hyperconnect subsidiary has been working on a new immersive experience called Single Town. It's probably not too difficult to see how this could fit into Meta's ambitions. 

Could it actually happen?

While there are definitely some compelling reasons for Meta to try to be the owner of Match Group, whether it's actually feasible is another question entirely.

The first issue is the financial angle. With Match Group's stock having now fallen by more than 50% from its yearly highs, the company's current enterprise value (market cap minus net cash) stands at about $25 billion -- or 26 times its trailing-12-month free cash flow -- which is less than Meta's net cash on hand. However, in the most recent quarter, Match Group's board of directors authorized a new share repurchase program amounting to almost $1 billion, indicating that the company thinks its stock is worth more than it currently trades for. This means Meta would likely have to pay a significant premium to make the deal happen.

Nonetheless, given that Meta generates almost $60 billion in annual operating cash flow, it'd likely be able to raise the capital necessary to finance the deal. The regulatory side might be a little tougher.

It's no secret that Facebook and Meta's other complementary apps have been under the watchful eye of regulators in recent years after the company was fined $5 billion in 2019 for violating consumers' privacy. This heightened scrutiny even led U.K. regulators to block Facebook's latest social media-related acquisition of the GIF database company Giphy for less than $400 million. If Meta couldn't pass an acquisition that trivial, I doubt regulators would feel too inclined to let Meta be the home of the world's leading matchmaking services.

Although I think it'd be a great acquisition candidate and an all-around sound business for Meta to tuck into its portfolio of subsidiaries, the likelihood of the deal ever happening strikes me as quite low.