Match Group (MTCH -0.36%) has helped build online dating into a category and a business model that has grown steadily over time. In this Motley Fool Live segment from "3-Minute Stock Updates," recorded on July 11, Fool.com contributors Ryan Henderson and Travis Hoium take a closer look at this stock.
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Ryan Henderson: This was Shar Dubey. She was an interim CEO. She came in with plans to step down after they found their next successor, and they did. He was the old CEO over at Zynga. But once they got acquired, he left, and he joined Match Group. So she had this exiting quote about the opportunity within dating and how big of a market it could be. She said, Online dating is not an overnight fad. It as a category and a business model that is built and grown steadily over time. This is not serving a fickle user need. I often say this, if you look at Maslow's hierarchy of human needs, right above food, shelter, and security is love and relationship. The need for relationships and dating is not going to go away. The market opportunity ahead for dating is massive. Over 700 million connected singles around the world are eligible to use our product and only half of the eligible TAM in the Western markets of the US and Western Europe have ever tried a dating app, and that number is much lower across the rest of the world.
Previously, they hadn't really talked much about addressable market throughout conference calls. I never really heard that commentary from them. But this was one, I think, to inspire some optimism from the investor base. I've seen estimates or projections that, in the US, more than 40 percent of heterosexual relationships started online, which was less than 20 percent, I believe, 10 years ago or a decade ago. There's no doubt that this is a booming category. I think anybody that has been on the search for a relationship probably knows that it's becoming more commonplace. I do think that, in a lot of emerging markets, they're still sort of the stigma, like it was in the US probably 20 years ago. I think it's becoming destigmatized in those markets. So that should serve as a easy natural adoption tailwind for a lot of Match Group's apps. Match Group, I really like how their approach has been to basically serve any potential user where, if you're looking for something more serious, it's probably like the hinge product that they have, or if you're older, they've built some custom apps for that. [inaudible 00:08:06] usually not want to pay attention to TAM numbers, but it feels like this is exactly what they're going after, and they are so well positioned competitively to be able to meet those users. Any thoughts, Travis?
Travis Hoium: Do you think this is the thing, because I do think it's interesting. I've been out of the dating scene for a while. But the fact that there was a dozen apps and all kinds of different use cases, but they were all owned by the same company. I thought it was always an interesting dynamic. Is that a threat because it is possible to spin up another one of these new companies, or are they going to actually be able to tie these together? Let's say I'm in college, I use one app, but then I can pull any information I want for my profile into the next app when I want to actually maybe get into a serious relationship. What are the dynamics there? Because that's one of the things that's always made me uncomfortable is that you are constantly looking for new users over time because, if you're successful, people are not going to use your product.
Ryan Henderson: I wish they were completely true, but it doesn't seem proving out that. [laughs] Yes, hopefully, you shouldn't use the app. But subscribers have consistently grown for them, that their increase and the average revenue per user will grow because they're increasing the value of the service and making it hopefully easier to find people, so more people are inclined to pay in that sense, as opposed to being a free user. As for the competitive dynamics, I think the barriers to entry are low, but those to scale are pretty high. It's hard to succeed in that because of that network effect where you want to go where the most users already are, and that seems to be most of Match Group's app. Only one other company has really succeeded in that regard. I think it's Bumble.