Match Group's (MTCH -0.12%) stock price dropped 5% on Feb. 1, following its fourth-quarter earnings report. The online-dating leader's revenue declined 2% year over year (but rose 5% in currency-neutral terms) to $786 million and missed analyst expectations by about $1 million. It generated a net profit of $0.30 per share, compared to a net loss of $0.60 per share a year earlier, which still missed the consensus forecast by $0.16.
Match's numbers were disappointing, but its stock is already down more than 50% over the past 12 months. Could it bounce back by the end of the year? Let's dig deeper into its near-term challenges to find out.
Image source: Getty Images.
Why is Match's growth cooling off?
Match owns more than a dozen online-dating apps, including Tinder, Hinge, Match, OKCupid, and Plenty of Fish. Its top app is Tinder, which accounted for more than two-thirds of all its payers in the fourth quarter and generates nearly all of its revenue from a la carte purchases and paid subscriptions. Match's year-over-year growth in total payers, revenue per payer (RPP), and total revenue all decelerated significantly over the past year.
|
Metric |
Q4 2021 |
Q1 2022 |
Q2 2022 |
Q3 2022 |
Q4 2022 |
|---|---|---|---|---|---|
|
Total payers growth (YOY) |
15% |
13% |
10% |
2% |
(1%) |
|
RPP growth (YOY) |
8% |
6% |
3% |
0% |
(1%) |
|
Revenue growth (YOY) |
24% |
20% |
12% |
1% |
(2%) |
Data source: Match Group. YOY = year over year.
Most of that slowdown was caused by macro headwinds, which curbed consumer spending on dates and dating apps, and the strong dollar, which gobbled up its overseas revenue. On a currency-neutral basis, Match's RPP rose 7% year over year in the fourth quarter of 2022. But that still represented a slowdown from its 9% growth in the third quarter.
On the bright side, Match's margins held steady as its revenue growth cooled off. Its adjusted operating margin (which excludes its acquisitions, impairment charges, and stock-based compensation) stayed flat year over year and rose by 1 percentage point sequentially to 36% in the fourth quarter.
During the conference call, CFO Gary Swidler attributed that stability to its "nimbleness on costs." He expects the company's overall expenses to stay "close to flat" in 2023 as it reallocates its marketing spending from "lower-growth businesses to higher-growth ones."
What are Match's plans for 2023?
CEO Bernard Kim, who took the helm last May, plans to break down the silos across Match's portfolio of apps to increase its "transparency," expand Tinder's ecosystem with new features, and let Hinge -- which Kim called a "standout" app with 30% year-over-year growth in direct (non-advertising) revenue in the fourth quarter -- continue to grow.
Kim believes that ramping up the company's investments in Tinder in 2023 will "accelerate" its momentum and "get us back to the financial performance that we all expect." But those efforts could still "take a few quarters."
Match expects "at least the first half of 2023 to remain challenging" as its revenue growth stays roughly flat year over year in the first quarter. But for the full year, it plans to deliver "5% to 10% year-over-year growth" -- mainly driven by Tinder's stabilization and Hinge's expansion -- as the macroeconomic and currency headwinds wane.
That matches analyst expectations for 8% revenue growth in 2023. By comparison, analysts expect Match's female-oriented rival Bumble (BMBL -0.59%) to generate 17% revenue growth in 2023.
Looking further ahead, Match and Bumble should both benefit from lower fees on Alphabet's Google Play and Apple's App Store. Match expects those lower fees, which would significantly boost its margins, to take effect in 2024.
Where will Match's stock be in a year?
At $50, Match's stock trades at about 18 times this year's earnings. Bumble, which is less profitable, trades at 109 times forward earnings.
I believe Match's reasonable valuation and expectations for stronger growth in the second half of 2023 should limit its downside potential in the first half of the year. The bulls could then return in the second half as they focus on Match's accelerating growth and the benefits of lower app-store fees in 2024.
I'm not certain if Match will outperform the market over the next 12 months, but I believe it will either hold steady or rise slightly higher. The online-dating market should continue to grow over the long term, and Match arguably remains the best-in-breed play, with its portfolio of market-leading apps.
