The past year or so has been a tough time to be an investor. In 2022, the Nasdaq-100 experienced its worst decline in over a decade, falling roughly 34%. Even as the broader market shows signs of a comeback, tech-centric stocks remain well off their highs. It's still possible things could get worse before they get better, but there's some good news for beleaguered investors.
It's high unlikely that the index will suffer a second consecutive down year. A review of the Nasdaq-100's performance, dating all the way back to its debut in 1986, shows that only once has it suffered back-to-back declines, during the dot-com bubble that burst between 2000 and 2002. The news gets better: In the first positive year following a decline, the market tends to surge, notching averaging gains of nearly 56%.
This has investors on the lookout for beaten-down growth stocks ready to rebound. For their part, analysts are remarkably bullish about the prospects of one former highflier. In fact, if Wall Street is right, this stock is set to soar 163% over the coming 12 months.
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This online dating pioneer has fallen on hard times
As a global pioneer in online dating, Match Group (MTCH 0.71%) has made its mark on the industry it helped to create and popularize. The company is home to popular dating apps Tinder, Hinge, Match.com, OkCupid, and PlentyOfFish, among many others, earning its credentials as the world's largest online dating company.
Its dominant position in the industry provided a huge payoff after the onset of the pandemic, when many people took to digital dating as a substitute for traditional meetups.
However, a lull has hit the online dating industry of late, which has stunted Match Group's growth. Total revenue of $3.18 billion grew just 7% in 2022, a far cry from the 27% increase it delivered at the height of the pandemic. At the same time, paying users declined 1% last year, compared to 15% growth in 2021. The company was also hamstrung by a strong dollar, which weighed on overseas revenue.
Investors are justifiably concerned about Match Group's ongoing prospects, and the stock remains 79% off its high.
A rebound is on the horizon
Match Group has been up front about its strained romance with Wall Street and has taken a number of important moves to get back in its good graces.
The first and perhaps most important step was the hiring of Bernard Kim in mid-2022 as CEO. One of Kim's first moves was to personally take charge of Tinder to get the company's biggest moneymaker back on track.
Management laid out a road map to help the popular dating app regain its footing by prioritizing product momentum to quickly introducing new services and premium (read moneymaking) features. Furthermore, the company is working to offer members a more-tailored experience, resulting in deeper engagement.
Lastly, Match is working to optimize its subscription, a la carte, and advertising revenue, which it says will account for two-thirds of Tinder's revenue growth this year.
The company has also embarked on a cost-cutting campaign that will result in Match Group cutting roughly 8% of its global workforce, while also reducing spending on advertising and overhead. The company also plans to "reallocate savings primarily from our lower-growth brands and corporate costs into our higher growth businesses."
Match Group expects to see the results of these moves in the second half of 2023, which will boost its margins and profitability as revenue increases.
As a result of these efforts, management is now forecasting a return to more robust growth. While the currency exchange headwinds and economic challenges are expected to continue (at least for the time being), Match Group is forecasting 2023 revenue growth of between 5% and 10% in constant currency, accelerating to double digits by the fourth quarter.
There's more: It's well established that advertisers tend to rein in marketing spending during tough times, since it's relatively easy to scale it back up in response to economic conditions -- and the current downturn is no different.
Match Group's indirect revenue -- substantially all of which is advertising -- declined 18% in the fourth quarter. Once the economy regains its footing, which it inevitably will, the spigot on marketing budgets will open once again, helping fuel Match Group's recovery.
Wall Street is overwhelmingly bullish
Many on Wall Street believe the selling has simply gone too far. Of the 17 analysts that cover Match Group, 11 rate it a buy or strong buy and not a single one thinks investors should sell. Investment bank Morgan Stanley is especially optimistic on Match Group's prospects, and just last month assigned a street-high price target of $95 and an overweight (buy) rating on the shares.
The investment bank has gone so far as to label Match Group a top pick. It is confident that Tinder will reaccelerate its revenue growth to the mid-teens and is bullish on long-term secular tailwinds driving the online dating industry's growth.
Furthermore, having read the tea leaves, these analysts believe the industry is "far from saturated," as online dating becomes the rule rather than the exception, providing Match Group with a long runway for growth.
If their conclusions are accurate, the stock could surge 163% over the coming 12 to 18 months, profiting Match Group shareholders along the way.
While the stock has never been particularly cheap, the recent downturn has changed all that. At less than 3 times next year's sales, Match Group's valuation is near an all-time low and quickly approaching bargain-basement territory.
With multiple catalysts to fuel its rebound, a deeply discounted valuation, and a ringing endorsement from Wall Street, now is likely a great time to buy Match Group ahead of the inevitable recovery to come.
