Over the past several years, online dating has gone from niche and often awkward millennial pastime, to a global norm for singles of all ages. Concurrent to that transition, online dating king Match Group (NASDAQ:MTCH) has morphed into a Wall Street favorite. MTCH stock went public at $12 per share in late 2015. Today, MTCH stock trades at nearly $60.
Believe it or not, despite the fivefold increase in less than three years, MTCH stock is far from done. This is a $16 billion company today. In an “everything goes right” scenario, I could reasonably see Match being a $50 billion company by 2025. Thus, while there won’t be anymore fivefold increases in three years, MTCH stock does have tripling potential over the next five-plus years.
But, that is an “everything goes right” scenario.
Right now, it looks like everything will go right for Match over the next several years. The online dating industry is booming globally, and social norms are shifting to accept online dating as not only appropriate, but also effective and worthwhile. Match, with its portfolio of online dating apps, including Match.com, Tinder, PlentyOfFish and OkCupid, is the unrivaled leader in this space. Thus, so long as Match can maintain that leadership position, a $50 billion valuation is achievable.
The one big risk? Competition. There is an elephant in this room and its name is Facebook (NASDAQ:FB). It remains to be seen how many people will use Facebook Dating — and I’m wary of that service gaining mainstream traction due to Facebook’s recent privacy problems — but Facebook does have a big scale and data advantage when it comes this space. And if the platform fixes its user optics, Facebook could use its scale and data advantages to take market share from Match.
Investment takeaway? MTCH stock is a long-term winner, so long as this company can maintain leadership position amid rising competitive threats.
Match Has Big Growth Potential
Online dating has broken out of its shell. A decade ago, this was a niche industry with a small user base. Today, social norms have shifted to not only accept online dating as appropriate, but also deem it as effective and worthwhile given that: 1) everyone is on it, 2) it takes minimal time and effort and 3) it’s a great way to meet people for many different purposes.
Match has naturally benefited as the online dating market has gone mainstream. Paying subscribers to Match’s suite of dating apps have grown from 4 million in 2015 to nearly 8 million today. Growth is hardly slowing on that front. Match’s subscriber base grew by 27% year over year last quarter.
Growth won’t slow anytime soon, either. When you talk about the addressable market for online dating globally, 8 million subscribers is a very, very small number. There are 4 billion internet users in the world. About half of them at any given time are single, so you are talking about 2 billion single internet users. Not all of those single people will use online dating apps. Roughly 60% of Americans classify online dating as a “good way to meet people”– and that share is growing. Globally, the percentage of people who think the same is likely way lower. But, over the next several years, it should grow to 60%. Thus, there are 1.2 billion single internet users in the world who would be willing to try dating apps.
But, many of these services, like Tinder, are free. Only Tinder’s upgraded versions cost money. How many of those 1.2 billion people are willing to pay for online dating? Over 60% of Tinder users say they use Tinder out of boredom. Those people won’t pay up for online dating. Moreover, there are probably another 15-20% of potential dating app users who simply don’t see the value in paying up.
When everything shakes out, the conversion rate from potential dating app users to paying dating app subscribers is likely around 20%. This implies 240 million potential dating app subs globally. How many of those can Match land? It looks like Match’s market share of the U.S. dating market was about 20% in 2015. Given greater competition globally, Match’s share of the global market will likely hover around 10%. Thus, at scale, that implies nearly 25 million subs for Match, versus 8 million today.
Assuming a 15-20% annualized sub growth rate, Match could get there by 2025. Also assuming ARPU grows slightly and margins continue to improve, I think Match is looking at potential revenues of $7 billion by 2025 (versus $1.3 billion last year) and profits of $2.5 billion (versus $200 million last year). A growth-average multiple of 20 on $2.5 billion implies a long-term valuation target of $50 billion for MTCH stock.
Match Needs to Maintain Leadership Position
In an “everything goes right” scenario, MTCH stock could go from a $16 billion valuation today to a $50 billion valuation in five-plus years.
The one big risk to that happening is Facebook. Facebook Dating is coming — and the market has no idea how the consumer will react.
On the plus side for MTCH stock, Facebook’s relationship with the public is strained by privacy issues, users are suffering from Facebook fatigue and there has never really been much of a dating angle to Facebook interactions.
On the negative side for MTCH stock, online dating is all about how many people you have and how much data you have to optimize matches. Facebook has more people and more data and if the company repairs trust issues with consumers, Facebook could use those advantages to become a viable competitor in the online dating world.
In other words, no one really knows how the Facebook wild card is going play out. Until Facebook Dating actually launches, though, the market will continue to treat MTCH stock like a long-term winner with mega-growth potential. Until the market stops treating MTCH stock like that, the stock is a buy.
Bottom Line on MTCH Stock
MTCH stock has tremendous long-term growth potential if the company can bypass the Facebook competition risk. Bypassing that risk is a wildcard at this point in time, but until that risk materializes, MTCH stock should head higher.
As of this writing, Luke Lango was long MTCH and FB.
