Online dating app giant Match Group (MTCH 0.63%) has had a rough go of it the last year and a half -- the stock is down more than 75% from its 2021 high. In recognition of a number of issues that were plaguing the company, Match Group brought in Bernard Kim -- formerly CEO of mobile gaming company Zynga -- to take the reins last May. Though Kim's first 12 months in the driver's seat certainly haven't been anything to write home about for shareholders, he thinks there are better days ahead.
Two weeks ago, Kim purchased more than $1 million of Match Group stock on the open market at an average price of $34.44 per share. While insider buying can occur for many reasons, it still begs the question: Is now a good time for investors to follow in Kim's footsteps?
Match Group's troubles
Before diving into the opportunities that could be in store for the company, it's important to understand what spurred the stock's sell-off.
For starters, a number of Match Group's dating apps operate internationally, so those units earn revenue in multiple currencies. This means that as the U.S. dollar strengthened over the last couple of years, the value of the company's foreign revenues have declined on a dollar basis. In fact, in 2022, the company reported $3.2 billion in revenue, up 7% from the year prior. Yet on a constant-currency basis, revenue was up 14%.
While currency headwinds are out of its control, Match Group has had its fair share of self-inflicted wounds as well. In the second quarter of 2021, it paid $1.7 billion in cash and stock to acquire the South Korean social discovery app Hyperconnect. Just one year later, Match booked a $217 million impairment to intangible assets due to a worsened outlook for that business. Additionally, in Q2 2022, Match Group took a $441 million charge from a litigation settlement related to a 2018 lawsuit with Tinder's co-founders. These charges significantly reduced the company's reported cash flow and earnings for the year.
But that's not all. Revenues from Match Group's flagship app, Tinder, which have consistently grown throughout its history, began to flatten out over the last few quarters. While that is partly attributable to the currency-exchange headwinds, the trend is leaving investors with doubts about the company's ability to grow going forward.
Still opportunities ahead
With the bad news out of the way, and largely in Match Group's rearview mirror, let's talk about some bright spots. First, Hinge -- Match Group's second-most-important property that targets more serious daters -- is seeing remarkable momentum. This year, management expects Hinge to generate $400 million in revenue, up from just $31 million in 2019. Considering the success Hinge has seen in the U.S., the company has quickly been launching the app in new European markets to much fanfare. In fact, this March, Hinge was reaching nearly 300 million monthly active users across continental Europe versus just 100 million a year prior.
But it's not just the user adoption that's impressive. Hinge has quickly increased its average revenue per payer from less than $10 a month in 2019 to roughly $25 a month today, and that trend looks poised to continue with the recent launch of a more expensive premium tier, HingeX.
Match Group also brought some good news to the table a couple of weeks ago when the company announced it was launching a "new social-first dating app for gay, bisexual, and queer men" called Archer. Mobile dating competitor Grindr has demonstrated that there is clearly a large addressable market to go after here. Grindr generates more than $200 million a year in revenue, and the company estimates there is a 434.9 million GBTQ+ population globally. While it remains to be seen whether or not Archer can steal share in this market, Match Group has vast resources and an established blueprint for building and scaling mobile dating apps. This will be an important market to track over the coming years.
Is it time to buy?
While I don't think it's a good idea to blindly follow insiders into buying shares, there's a lot to like when it comes to Match Group. For starters, the company expects to generate more than $800 million in free cash flow this year, and it's using a fair amount of its cash flow to repurchase shares. Last quarter, it bought back $112.5 million worth of stock, which on an annualized basis equates to roughly 4% of Match Group's market cap. Assuming management is correct on their free-cash-flow estimates, that would imply an enterprise-value-to-free-cash-flow ratio of 19, which strikes me as a fair price to pay for the clear leader in the growing online dating category.
