Since its debut on the public markets in 2015, not many companies have kept up with Match Group's (MTCH -0.65%) combination of growth and profitability. The dating app conglomerate has impressed investors with phenomenal profit margins and a knack for finding new categories to explore with online dating applications.
This continued with its first-quarter report when Match put up another quarter of 20% revenue growth. However, with the broad market sell-off in 2022, Match Group stock has fallen out of favor, down 45% year to date, even though the business has continued to grow. This could provide long-term investors with a buying opportunity.
Can Match Group stock help you retire a millionaire? Let's take a look.
Owner of multiple dating apps
Match Group owns a ton of different dating apps, including Tinder, Hinge, Match.com, and OkCupid, among others. Since beginning under IAC's umbrella back in the late 1990s, the company has bought and built many different applications to serve online dating needs.
The most important application it owns now is Tinder, the No. 1 dating app in the world. Tinder is a more casual dating service that focuses on a younger audience under the age of 25, so it's not surprising the service has exploded in popularity due to how much time younger folks spend on the internet. As of the end of 2021, the app was generating $1.65 billion in direct revenue, more than half of Match Group's top line.
There are a few other apps investors should understand when studying Match Group. Hinge, a relationship-focused app for millennials, is growing revenue more than 100% year over year, and it generated $197 million in sales last year. Match.com, Plenty of Fish, and OkCupid are part of the established brands that still have strong audiences but are no longer expanding quickly. These are cash generators that grew revenue 5% in 2021.
Strong profitability, long runway ahead
When looking at Match Group's business, its unit economics and profitability are quite impressive. Even though it grew revenue 20% year over year last quarter, the company generated an adjusted operating margin of 34%. On an annual basis, the company has had an adjusted operating margin of 35% or higher every year since 2017, and that is while also growing revenue at a 22% compound annual growth rate in the same period.
Why is Match Group able to grow so quickly with such strong margins? Because of the increased adoption and cultural acceptance of online dating around the globe. Given the sensitive/personal nature of romantic relationships, online dating has not grown as quickly as something like social media, but it has seen a steady increase in adoption over the last decade-plus, and is expected to continue growing over the next decade. Given Match Group's dominant position in the industry, it has been able to ride this tailwind without having to put much effort into sales and marketing.
For example, in the latest quarter, Match Group shared the number of monthly active users (MAUs) across all of its services. At the time of its IPO, the company had 60 million MAUs, and that number has grown to just under 100 million most recently. Compared to social media giants like Facebook, this might not seem like a lot of users. But online dating by definition already has a smaller addressable user base than social media in general (people in relationships are mostly not on the apps), so nobody should expect a company like Match Group to have a billion-plus users. Plus, I believe this indicates online dating is still in its early stages. There's no reason Match Group can't reach 200 million or even 300 million MAUs around the globe at some point, which can drive revenue growth for years to come.
Valuation has come back a bit
At its current share price of $72, Match Group has a market cap of $20.6 billion. Add back its $3.9 billion in debt and subtract out $921 million in cash, and it has an enterprise value of $23.6 billion.
With $878 million in operating income in the past 12 months, Match Group stock trades at a trailing enterprise value-to-operating income ratio of 28. This is more expensive than the market average but doesn't necessarily mean the stock is expensive given the company's track record of more than 20% revenue growth.
So is this your millionaire stock?
With the combination of a strong track record, industry tailwinds, and fantastic profit margins, Match Group is a high-quality business. At current levels, there are not many valuation concerns either, and the stock will likely outperform over the next decade.
At these prices, buying Match Group and holding for the long term can potentially help you retire a millionaire.