There's no question that the simplest way to generate long-term wealth is by investing in the best companies you can find and holding them for years, if not decades. That said, the past 18 months have tested the mettle of even the most seasoned investor. The worst may be behind us, however, as the Nasdaq-100 has recently been trading more than 20% from its bottom -- which has some market commentators calling it the beginning of the new bull market.
They might be right. A check of the Nasdaq-100's record, dating back to its debut in 1986, shows that only once has the index suffered back-to-back down years -- during the dot-com bubble that burst in 2000. What's more, in the first positive year following a downturn, the market tends to rebound, averaging gains of nearly 56% -- and a recovery may already be upon us.
The likelihood that we're in the early days of a bull market has investors on the lookout for beaten-down growth stocks on the verge of recovery. Analysts, for their part, are remarkably bullish about the potential of one former highflier. In fact, if Wall Street is right, this stock is set to soar 130% during the coming year.
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Investors are swiping left on this online dating pioneer
As the world's first online dating site, Match Group (MTCH 0.63%) still dominates the industry it helped to shape. The company owns a portfolio of popular dating apps, including its namesake Match.com, as well as Tinder, Hinge, OkCupid, and PlentyOfFish, among others, earning its pedigree as the world's largest online dating purveyor.
Its industry-leading position reaped huge rewards during the pandemic, but the subsequent downturn had consumers pressing pause on all but the most necessary of expenses. This has been all too apparent in the company's recent results.
Match Group's 2022 revenue grew just 7% to $3.18 billion, which pales in comparison to the 27% growth it delivered at the height of the pandemic. Things have gone steadily downhill so far this year, as paying users declined 3% year over year in the first quarter, compared to 15% growth at its peak in 2021. Further exacerbating the issue was the impact of a strong dollar, which skewed Match Group's international revenue lower.
Given the challenging environment and fears economic woes could linger, it isn't surprising that Match Group's stock is still down 76% from its mid-2021 peak.
A recovery on the horizon?
Many on Wall Street believed the honeymoon was over, but Match Group has done its best to get the relationship back on track. The first step came in mid-2022 with the hiring of Bernard Kim as CEO. The chief executive moved quickly to make improvements, reorganizing the company to better address its large and growing opportunity.
Match Group focused on innovation and introducing new premium services and product features designed to give users a more individualized experience, which will ultimately increase user engagement. It's also working to optimize revenue by tailoring a la carte features, subscription packages, and digital advertising, designed to both combat the softening macro environment and reignite growth. Management believes these steps will "drive approximately two-thirds of Tinder's revenue growth in 2023."
The company is also slashing costs, which will result in a leaner operation. Earlier this year, Match Group laid off 8% of its employees while also reducing marketing and overhead expenses.
Management also plans to "reallocate savings primarily from our lower growth brands and corporate costs into our higher growth businesses." Match expects notable improvement in the second half of 2023, with double-digit year-over-year revenue growth resulting in margin improvement "as revenue growth accelerates and cost savings realized."
As a result, Match Group is guiding for year-over-year growth in a range of 5% and 10% in constant currency in 2023, accelerating to double-digit growth by year-end. Furthermore, as the economy improves and the downturn-related dearth of ad spending eases, the company's indirect revenue will improve, further fueling its growth.
Wall Street is swiping right on Match Group
Many on Wall Street are already preparing for a recovery. Of the 17 analysts covering Match Group, 11 rate the stock a buy or strong buy and not a single one thinks the stock should be sold. Morgan Stanley is the most bullish among its Wall Street peers, assigning a Street-high price target of $95 and an overweight (buy) rating on the shares. This represents potential upside for investors of 130%, compared to Monday's closing price.
The analysts went even further, naming Match Group a "top pick," espousing "confidence in Tinder's ability to reaccelerate to mid-teens revenue growth," according to The Fly. Morgan Stanley also cited the "durability of [the] U.S. online dating industry" as a secular tailwind that will continue to drive future growth.
As a Match Group shareholder, I believe the company's ongoing international expansion, innovative offerings, and the aforementioned secular tailwinds will be the driving factors that fuel the company's ongoing rebound. Furthermore, I think less than 4x sales is a pretty reasonable price to pay for the undisputed industry leader.
Given the multiple catalysts to drive Match Group's recovery, a reasonable valuation, and a stirring endorsement from Wall Street, now seems like the best time to buy this stock -- before the rebound begins in earnest.
