Regular readers may recall that I’ve been pounding the table on Match Group (MTCH) for over two years now. With the world contending with a global pandemic and economic pullback, my assertion that dating apps would prove recession-resistant has been put to the test. From my 2018 article:
As I have discussed previously, history shows that demand for online dating is fairly inelastic. Indeed, Match.com boasted its best numbers at the height of the Great Recession, possibly because people see dating as an escape from financial stress.
So far that thesis has proved true. The company easily beat earnings for the latest quarter, taking in $0.51 per share versus the $0.44 consensus. With the pandemic poised to play a role in our lives for some time to come, Match shares remain a solid hold.
Short Thesis Defeated
Kerrisdale Capital’s headline-grabbing short back in February now looks to be a blunder of epic proportions. If they are still betting against the stock, then their losses are surely staggering. We haven’t seen any update from Kerrisdale, although I don’t expect to. Like most foolhardy short bets gone sour, they will most likely fade away quietly.
Let’s briefly review Kerrisdale’s article, if only to recap the reasons why Match Group remains a great long-term buy. The overall impression is of an Alex Jones conspiracy piece with a bit of actual analysis thrown in at the end. Mundane events such as the departure of the CEO are treated as suspect. The timing of InterActiveCorp’s (IAC) spinoff is deemed suspicious. I apologize for pointing out the obvious, but IAC is a company with the sole purpose of growing and spinning off subsidiaries. That’s how Barry Diller has generated monster returns for shareholders for decades. A full Match Group spinoff had been expected for some time.
Regulators have scrutinized Tinder’s supposed practice of baiting users into paying for Tinder Gold with the promise that more “matches” will be revealed with the upgrade. In fact, many of those matches are fake profiles. It isn’t entirely Match Group’s fault that fake profiles plague the site, and the company will surely argue as much. Unscrupulous business practice? Probably. Criminal behavior? I don’t think so.
In any event, the prevalence of fake profiles has been much reduced as of late. Many dating apps, including Tinder, are taking steps to verify users using photo verification tools. Also, the value of Tinder Gold is hardly predicated on a one-time revelation of who “liked” you.
At the heart of Kerrisdale’s argument is the totally unfounded claim that users are suffering from dating app “fatigue” which will eventually result in abandonment of the app. No such affliction exists. In fact, the most recent data show that over 40 percent of couples met online, a figure that has been rising steadily for two decades. We don’t have post-pandemic numbers, but that figure has undoubtedly soared in the absence of in-person venues.
Match and the Pandemic
Any investor could have seen that the stock was a fantastic buy in March. I myself recommended the stock near the bottom of the panic. Shares have doubled since then and recently hit an all-time high of $120.
Even in the face of economic calamity, average revenue per user was up 5 percent year-over-year at non-Tinder brands and down 2 percent at Tinder itself (flat excluding FX impacts). The company’s overall revenue grew 12 percent YoY on the back of a 11 percent jump in subscriber count.
Match also revealed on its most recent earnings call that a new subscription tier for Tinder is in the works. In terms of innovation, many paths exist for the company to add value for users.
Although I don’t want to declare victory prematurely, I feel supremely comfortable with my capital parked in a business that continues growing in the midst of a pandemic and recession. That said, at a P/E of over 50 times earnings, I wouldn’t be a buyer. Technology-enabled platform companies have soared to unprecedented heights as investors scramble for safety and growth. The valuations are starting to look a little silly.
At this point I plan to hold and add on any major price declines, as I have been doing for over two years.
Disclosure: I am/we are long MTCH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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