On May 1, shares of Match Group Inc (NASDAQ:MTCH) fell more than 22% during the session. That was the same day that Facebook, Inc. (NASDAQ:FB) hosted its F8 developers conference. What did they say that was so bad for Match stock, and is it a bargain for investors?
During its developers conference, Facebook said it’s launching a dating service on its platform. One that’s “not just hookups” either, CEO Mark Zuckerberg said. That’s actually good and bad news for Match.
Match’s first business — as anyone who watches TV knows — is Match.com, the online dating platform that singles use to find romantic partners. Then there’s Tinder. The “Swipe Right” app is exactly what Zuckerberg isn’t looking to get into, that being the singles-only-looking-to-mingle group.
Facebook vs Match Stock
It reminds me of when Amazon.com, Inc. (NASDAQ:AMZN) gets into some new business category. Just because Amazon intends to enter a space or does enter it, doesn’t mean the existing leaders in the group are automatically done for.
Conversely, it also doesn’t mean that Amazon — or FB in this case — won’t be disruptive. It’s all about continuing to innovate and creating a better product.
It’s too early to say what type of impact Facebook could have. Unfortunately for Match, Facebook has about 2 billion monthly active users. Its ease of access could make it that much easier for Facebook users to try its dating services simply because of the convenience factor.
On the plus side, though, Facebook has existed for a long time, and people have still found Match useful. I think Match CEO Mandy Ginsberg said it best:
“Research also says that the vast majority of singles would not want to use Facebook for dating primarily due to concerns with data and personal privacy. But more importantly they don’t want to be contacted by strangers on a social network meant for connections with friends and family. This resistance is particularly pronounced among women in the younger demographics.”
On Tinder authentication:
“Before last year our users could only sign-up using Facebook authentication. Within two months of offering Tinder users an alternative to sign-up with Facebook, new users went from 100% Facebook sign-up down to only 25% Facebook sign-up. Even though a Facebook sign-up was the first option on the screen and the most frictionless.”
“Said in another way, users quickly and decisively separated Facebook from their dating experience. The data we show for new users sign-up is for North America, but the trend is very similar globally.”
Match Stock Earnings
As if this isn’t enough of a volatility-inducing event, MTCH also reported first quarter earnings this week. Earnings of 26 cents per share beat analysts’ estimates of 23 cents per share. Revenue of $407 million grew 36% year-over-year and easily beat consensus expectations of $385 million.
Second quarter revenue guidance of $405 million to $415 million easily topped the $390 million analysts were expecting. Full-year revenue guidance of $1.6 billion to $1.7 billion is ahead of consensus expectations calling for $1.6 billion.
Should the company top expectations again in Q2, a higher full-year outlook isn’t out of the picture. However, management actually signaled that the second half could have some tough comparable figures.
Despite this hiccup, the numbers here are still pretty strong. First quarter operating income surged 91% YOY, margins expanded notably, and free cash flow jumped almost 40% YOY and came in at a positive $117 million.
Further, paying Tinder subscribers for the quarter tallied in at 3.5 million, almost double MTCH’s first quarter 2017 results and up more than 11% from just three months prior.
In short, the results here are really good.
Trading Match Stock
Management did a great job showing confidence in its business. As Ginsberg said in the press release: “We continue to deliver innovative products that customers across our portfolio of brands find valuable, and we are not slowing down anytime soon.”
Trading at 32 times this year’s earnings isn’t exactly cheap. But it’s fairly reasonable when you consider earnings are forecast to grow 86% this year and 23% next year. Further, analysts expect revenue to jump 20% in 2018 and 15% in 2019.
Here’s the thing, though. Facebook has already said it’s not going after Tinder when it wasn’t targeting hookups. Well, Tinder is the growth engine to Match stock. As long as that business remains intact, so too should Match.