Online dating specialist Match Group (MTCH 0.12%) has had a rough go of it over the past year. Following a pandemic-related boom, the tech company's revenue growth has slowed. When also considering market-wide problems such as inflation and company-specific issues (more on that later), it's not surprising that Match Group stock now finds itself near its 52-week low as of this writing.
Can Match Group turn things around? Let's look into the company's business and decide whether it can deliver solid returns from here on out.
Who competes with Match Group?
In today's digital world, many people are increasingly turning to online dating, which should be no shock considering its advantages. Meeting potential partners on an app allows users to broaden their pool of potential suitors and connect with people they otherwise would have never been able to meet.
Thanks to its portfolio of more than 10 websites and apps -- including Tinder, Hinge, and OkCupid -- Match Group is a leader in online dating, but it is not the only game in town. One of the company's most important competitors is Bumble, whose namesake app is known for putting women in charge.
In heterosexual pairings, only women can make the first move on Bumble's app. This key distinction has allowed Bumble to gain some traction. Still, it remains far behind Match Group in terms of paying users. Match Group's total paying subscribers increased 10% year over year in the second quarter to 16.4 million.
Bumble's total paying users in the second quarter (which included those on Badoo, another app it owns) came in at about three million, up from the 2.9 million it reported during the year-ago period. In fairness, Badoo's app is losing users, while Bumble continues to march forward. But the distance between Match Group and one of its closest competitors is worth mentioning.
Match Group's opportunities
At first glance, Match Group's 16.4 million paying users look like a drop in the bucket, and there is some data to confirm the company can still make substantial headway in this category. Only 43% of adults in the U.S. and Europe have tried a dating app based on company research from 2021. That metric is lower in all other parts of the world, including the Asian-Pacific region (excluding China), where only 18% of adults have tried online dating.
Add to that the fact only about 15% of Match's group users are paying users. But there is another crucial reason why Match Group can continue growing, especially among those who have yet to try online dating. Match Group benefits from the network effect -- the value of its platform increases as more people use it. The more users on Tinder, or any of its other websites or apps, the more its different brands become attractive to those looking to find love online.
Match Group's network effect should allow the company to remain in a solid position in this industry long term.
Worth it for patient investors
Match Group's latest financial results were mixed. Revenue grew 12% year over year to $795 million in the second quarter. That's a lower growth rate than what investors are used to, but in fairness, that was partly due to exchange-rate dynamics with revenue up 19% on a currency-neutral basis. Revenue per paying member also increased 3% year over year to $15.86.
Data by YCharts. YoY = year over year.
It's worth noting that Match Group's new CEO, Bernard Kim, has made some crucial changes too. The biggest was the decision to part ways with Renate Nyborg, CEO of Match Group's flagship service, Tinder. Kim shed light on his reasoning in the second-quarter shareholder letter:
Tinder’s current revenue growth expectations for the second half of the year are below our original expectations as a result of disappointing execution on several optimizations and new product initiatives. I believe Tinder's overall product execution and velocity can be improved and that we need to do more to excite our user base to drive top of funnel growth.
Nyborg's departure was part of broader changes to the company's leadership. Of course, these changes won't bear fruit immediately, and management is guiding for only mid-single-digit revenue growth at Tinder in the current quarter. But it will be important to track how Tinder progresses (if at all) going forward, and management is hoping to see the brand's growth pick back up in 2023.
Even with these headwinds, though, Match Group is a solid long-term bet, thanks to its leadership in online dating, its competitive edge, and the industry's long-term opportunities. That's why the tech company looks like a buy, especially while it is still substantially down over the past year.
