There's no denying that the past couple of years have been a roller-coaster ride for investors. After hitting record highs in late 2021, the stock market went on to suffer its worst performance in more than a decade. But the economy finally appears to be on the mend, and the market has come roaring back so far this year with the major indexes each up more than 20% from their recent troughs, suggesting the next bull market is upon us, at least by that measure.
Yet even as there are signs the recovery is here, not all stocks have bounced back. As a result, there are still plenty of opportunities lurking for investors to profit from businesses with a long track record of success whose stocks have yet to take part in the recovery. Analysts are remarkably bullish about the prospects of one beaten-down growth stock. In fact, if Wall Street is right, this stock is set to soar 106% over the coming 12 to 18 months.
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Dating slowed during the downturn
Match Group (MTCH 0.63%) was the world's first online dating site, and it continues to lead the industry it pioneered. The company owns a collection of popular dating apps, including its namesake Match.com, Tinder, Hinge, and many more, securing its position as the world's largest online dating provider. The company's position as the industry leader paid dividends during the pandemic, but the economic hardships of the past couple of years caused customers to rein in all but the most essential spending, which was painfully obvious in Match's recent results.
In 2022, Match Group's revenue grew to $3.2 billion, up just 7%, in stark contrast to the 27% growth it generated at the height of the pandemic. Challenges remain as paying users are down 5% through the first half of 2023, compared to 15% growth in 2021. Adding insult to injury is the effect of a strong dollar, which continues to make international revenue appear lower when converted to dollars.
Given the headwinds the company has endured, it shouldn't come as a surprise that Match Group's stock is still 74% off its peak. But as the economic environment has improved, more people are ready to begin dating again.
Love in the air?
For many on Wall Street, it was a case of love on the rocks, but Match Group is working to repair the relationship. CEO Bernard Kim was hired to lead the company in mid-2022, bringing a fresh perspective to the C-suite. The chief executive has taken several steps to position Match Group for success once the economy revs up in earnest. Kim initially slashed costs, reduced Match's headcount, and cut the company's overhead and marketing expenses.
Match also laid out a roadmap of new premium services and features to improve the user experience and boost engagement. The company is working to tailor several a la carte features and subscription packages designed to maximize revenue and rekindle growth.
Those moves are beginning to have the desired effect. The decline in paying users has slowed, and revenue per payer (RPP) rose 10% year over year (12% when excluding the impact of exchange rates) in the second quarter. Furthermore, adding weekly subscription packages has boosted female conversion levels at Tinder, especially among younger women, which sets the foundation for future growth. Perhaps as importantly, daily new users of the dating app bottomed in February and have grown in each successive month.
As a result, Match Group has guided for full-year revenue growth in a range of 5% and 10% in constant currency this year. Following a slow first half to the year, management expects growth to accelerate to double-digit levels by the fourth quarter. The company also expects adjusted operating income to improve by roughly 14%.
Just two months ago, Kim signaled his confidence in the company's momentum, spending $1 million to buy more Match Group shares. He nearly tripled his stake, which now stands at 48,500 shares worth $2.2 million.
Wall Street is swiping right on Match Group
Many on Wall Street believe the company is already on the mend. Of the 25 analysts covering Match Group, 18 rate the stock a buy or strong buy, and not a single one recommends selling. Morgan Stanley is the most bullish with a Street high price target of $95 and an overweight (buy) rating on the shares. This represents potential upside for investors of 106% as of this writing.
The investment bank also reiterated Match Group as a "top pick," saying it has "confidence in Tinder's ability to reaccelerate to mid-teens revenue growth," according to The Fly. The firm also pointed to the "durability of [the] U.S. online dating industry" as a secular tailwind that will fuel future success.
Wall Street isn't the only one betting love will conquer all. As a longtime Match Group shareholder, I believe the aforementioned initiatives, combined with an economic rebound, will drive Match Group's continuing recovery. And trading at roughly 3.3 times next year's sales and 14.6 forward earnings estimates, the stock is selling for a song.
Given the numerous catalysts to fuel its recovery, an attractive valuation, and a ringing endorsement from Wall Street, now is the time to buy Match Group stock, before the rebound gains steam.
