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.
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.