Cap­i­tal­is­ing on in­ter­net ro­mance

Tech­nol­ogy has had a pro­found im­pact on the way peo­ple meet part­ners. Match Group is the owner of var­i­ous big­name on­line dat­ing sites and is well po­si­tioned to profit from this rapidly grow­ing sec­tor.

Finweek English Edition - - MARKETPLACE - Editorial@fin­week.co.za is di­rec­tor at Capilis As­set Man­age­ment.

with­our lo­cal stock mar­ket close to all-time highs and a great deal of political uncertainty cur­rently in South Africa, I de­cided to stay well clear of any lo­cal stocks this week and re­visit Amer­i­can in­ter­net com­pany Match Group, which is listed on Nas­daq, and which I briefly men­tioned in a pre­vi­ous Pro Pick, Swipe right for In­terAc­tiveCorp pub­lished in the 30 July 2015 is­sue.

Match Group is the world’s lead­ing provider of dat­ing prod­ucts, re­defin­ing the way mil­lions of peo­ple meet, date and start re­la­tion­ships ev­ery day. The com­pany of­fers a port­fo­lio of over 45 brands, trans­lated into nearly 40 lan­guages, and avail­able across more than 190 coun­tries around the world.

The firm’s prin­ci­pal brands in­clude Match.com, Tin­der, Meetic, OkCupid and Plen­tyOfFish, which gen­er­ate rev­enues through a combination of sub­scrip­tion, trans­ac­tion and ad­ver­tis­ing mod­els, dis­trib­uted through desk­top and mo­bile de­vices.

Match Group’s dat­ing seg­ment ac­counts for 91% of rev­enues, which pri­mar­ily come from re­cur­ring mem­ber­ship fees charged to users. The firm also op­er­ates The Prince­ton Re­view, a lead­ing provider of tu­tor­ing and test prepa­ra­tion ser­vices, equat­ing to 9% of to­tal rev­enue.

When it comes to dat­ing, peo­ple have a wide range of pref­er­ences, in­flu­enced by geog­ra­phy, re­li­gion, race and a few other fac­tors that make the dat­ing mar­ket com­plex enough that one par­tic­u­lar dat­ing prod­uct won’t be able to serve all cus­tomers’ needs.

I be­lieve that Match Group’s strat­egy has there­fore been de­vel­oped to pro­vide a di­verse port­fo­lio of brands that ap­peal to a broad range of peo­ple. Tech­nol­ogy is start­ing to make a fun­da­men­tal im­pact on how peo­ple meet to­day.

The num­ber of smart­phone sub­scrip­tions world­wide is ex­pected to in­crease to 6.3bn by 2021, up from 3.2bn in 2015, ac­cord­ing to the lat­est Eric­s­son mo­bil­ity re­port. Mo­bile data traf­fic per smart­phone is ex­pected to reach a whop­ping 22GB per month in North Amer­ica by 2021, up from 3.7GB in 2015, ac­cord­ing to Eric­s­son. With this type of pro­jec­tion in mind, more peo­ple will par­tic­i­pate in the on­line dat­ing scene.

Match Group spun off from Nas­daq-listed me­dia and in­ter­net group, In­terAc­tiveCorp (IAC) in Novem­ber 2015 through a $460m ini­tial pub­lic of­fer­ing. The com­pany has grown its prod­uct port­fo­lio through an ag­gres­sive acquisition strat­egy. IAC re­tains ap­prox­i­mately 85% of Match, and con­trols 98% of the vot­ing power. Match Group ac­counts for about 35% of rev­enue of In­terAc­tiveCorp.

Tin­der to me is one of the most ex­cit­ing parts of the busi­ness and has shown ex­cep­tional growth in the first quar­ter as it sur­passed the 1m paid mem­ber count (PMC).

The av­er­age PMC of Match Group in­creased 36% to 5.1m in the March quar­ter com­pared to 3.7m in the same quar­ter a year ago, pri­mar­ily driven by growth at Tin­der and the acquisition of on­line dat­ing site Plen­tyOfFish, which it bought in July 2015.

What truly caught my at­ten­tion is the fact that Match has grown its rev­enues in the US at a 25.7% com­pound an­nual growth rate over the past five years. Man­age­ment re­cently com­mented that it pre­dicts Tin­der to dou­ble its PMC by the end of the year. Tak­ing all of this into con­sid­er­a­tion, we feel there is still a great deal of growth to come.

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