Silicon Valley is buzzing about whether the dating site kingpins at Match Group Inc (NASDAQ:MTCH) are trying too hard to make a merger with women-first upstart Bumble.
At this point, I think the numbers still make a good fit — and even if there’s no long-term chemistry here, MTCH has what it takes to dominate its field.
Bumble shocked a lot of venture capitalists by turning down a $450 million Match Group takeover bid over the summer. Some thought it was arrogance, others pointed at lingering bad vibes from CEO Whitney Wolfe’s time at MTCH property Tinder.
Either way, Match Group is playing hardball now with a rumored $1 billion follow-up bid which, if true, raises Bumble from the minor leagues straight to unicorn status. Since Wolfe controls 20% of the stock, she can take that bid or go her own way. Like the women who dominate her dating platform, she’s in the driver’s seat.
If she accepts the offer, MTCH’s money certainly isn’t being wasted. Granted, $1 billion is real money for what amounts to a raw start-up — we’re looking at 10X reported revenue and the company is unlikely to breakeven any time soon — but it’s all about relative growth and co-opting potential competitors.
MTCH dominates online dating and remains relevant by absorbing hot venues as they emerge: OKCupid and millennial “swipe” favorite Tinder have already joined the network, and if Bumble follows, it’s just another wall around the $2 billion dating garden.
Either way, MTCH itself trades at 6X revenue and Bumble is in the sweet spot of its growth now, so on pure valuation terms, a deal here should pay out by 2019 at the latest.
A MTCH Made in Heaven?
But Wolfe doesn’t have to take the bid. Buying Bumble, its growth rate and its 22 million accounts is a bonus for MTCH, not a strategic imperative.
Match Group already has critical mass with roughly 59 million active accounts across its properties, and that math exposes an important truth of the online dating business: a lot of Bumble users are already looking for love on Tinder and other MTCH sites. Stacking sites together doesn’t extend your reach as much as it deepens your hold on the people already in your system, and right now Tinder has the home-court advantage with the under-35 crowd. It’s MTCH’s game to lose.
They’re doing alright on their own. The internal dating pool may not be growing fast — maybe 10%-15% a year — but the base is big enough that the growth rate feels realistic. And by the time all those clicks and swipes reach the bottom line, MTCH is sustainably profitable, expanding its earnings at roughly the same rate.
If all the kids swipe straight to Bumble in the next year or so, the company could become a heartbreaker. Otherwise, the numbers are actually as attractive as what I see on Facebook Inc (NASADQ:FB) and, remarkably, twice as hot as Twitter Inc (NYSE:TWTR).
A love connection with Bumble would only put added swing in the stock’s step on the way to $35 and beyond.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.