Match Group (MTCH.pdf

Match Group (MTCH)
November 15, 2024
By
Eduardo Ribeiro
Overview
Match Group Inc (MTCH) Company overview
Current Share Price: $30.71 Match Group (MTCH) is a software
Market Cap $7,710 MM company that specializes in online
dating services. The company is
Free Cash Flow (TTM) $893 MM
divided into 4 main branches of
EBITDA (TTM) $978 MM business: Tinder, Hinge, MG Asia
PEG Ratio (5 years) 0.45 (5 yr) and E&E, operating worldwide in
190 countries and 40 languages.
Recommendation Buy
Match Group's platforms enable
users to create profiles and
connect with others, facilitating
romantic relationships and social
interactions. The primary way
they generate revenue is through
offering premium subscriptions to
their applications that grant users
more perks
Investment Thesis
Match Group offers high quality applications that dominate a
market that is poised to grow steadily as people’s social life is
becoming more and more online. With a strong cash flow
generation used to repurchase shares and great capability to
monetize its services, MTCH is undervalued at this current price,
Outcomes and Opportunities
The company is focused on its share-repurchase program, spending $241
million buying back shares in 3Q2024 alone and pledging to spend most of
their FCF to maximize the effectiveness to this program in order to maximize
shareholder value
Management has been focusing on optimizing pricing of its subscription

bundles for all its Apps. This initiative allowed them to increase average
revenue per user by 5% year over year, with growth specially present in Hinge,
with a 12% YoY growth
The company has registered a -4% YoY decline in paying users and -9% YoY
monthly active users for its flagship app, Tinder. This has culminated in a -1%
YoY change in revenue for the platform. Management states that they expect
user base to grow again as they continue to make improvements to the
platform’s features and campaigns to target college-aged audiences
Outcomes and Opportunities
Hinge, on the other hand, had a fantastic year. The platform has
outperformed all others in the MTCH ecosystem, posting a +36% YoY Revenue
growth, +21% paying user base, +12% revenue per user and a +82% net income
growth. Hinge’s growth has been responsible for offsetting Tinder’s decline
and thus stabilizing the company’s earnings in the quarter
MG Asia posted a slight decline YoY of -6% revenue. The platform Azar,
continues to expand aggressively into Europe, growing its user base by +27%
YoY and +14% increase worldwide. Its new AI feature allows users to chat
through video is likely to boost the platform’s popularity among gen Z users
who want a more spontaneous dating experience. The segment, however, still
has a negative operating income margin.
E&E, however, was the segment that had the worst year. The diverse
platforms that operate under this segment, each aiming to reach a specific
target audience, decreased the segment’s operating income by -88% YoY. The
company has a positive outcome for the sector, expecting that a handful of
these platforms will turn out to be huge successes by serving underserved
demographics
The company’s efforts to increase ARPU and willingness to explore

different pricing options for their premium bundles according to
different user preferences allows for them to capture more revenue
Possible AI integrations to the algorithm will improve matching and

profile recommendations, which can present an opportunity for more
price hikes for subscription plans in the future
Competitive Position and Industry
Over the past years, the percentage of people in the US that met their
current partner through online dating platforms has grown significantly.
According to some sources, this number has surpassed 50% of couples in
the country, compared to only 37% in 2017. In a world where people will
meet their partners, being long term or short term, through online
platforms, MTCH, with its household platforms like Tinder and Hinge and
emerging platforms that aim at specific demographics, is at a prime
position to take advantage of this trend.
The online dating industry is one with a relatively high barrier to entry.
Considering that people only go into these platforms to find a partner,
every new platform has to have a large user base to become attractive to
new users in the first place. With this challenge long behind, other
companies can try to defy MTCH’s dominance in the industry, but will most
likely not reach their level of market dominance.
Risks
The company’s efforts to increase ARPU and willingness to explore

different pricing options for their premium bundles according to
different user preferences allows for them to capture more revenue
Possible AI integrations to the algorithm will improve matching and

profile recommendations, which can present an opportunity for more
price hikes for subscription plans in the future
Earnings Overview
Income Statement Overview

Revenue for First 9 months of 2023 x First 9 months of 2024:
2,498M x 2,619M. Driven primarily by Hinge’s explosive growth
and a higher ARPU across the board
- EBITDA Q3 2023 x Q3 2024: 268M x 243M, driven by a severely

lower income generation from E&E and a slight decline in Tinder
- Net Income Q3 2023 x Q3 2024: $163M x 136M, also driven by the

same losses E&E and Tinder
Balance Sheet Overview:

- Current Ratio: 2.49
- Debt to Equity Ratio: Negative. The long term liabilities of the
company surpass their assets
Debt to FCF: 4.3. If the company uses their strong FCF generation
to pay off their debt this should be no problem
Statement of Cash Flows Overview

- Cash Provided by operating activities: 9M2023 x 9M2024: $678M
v $620M, driven mainly by more stock based compensation, even
with the lower net income figure
- Free Cash Flow: 9M 2023 x 9M 2024: $570M x $635M
- FCF in the TTM = $893M
- Analysts’ expectation for FCF in FY 2025: $988M
Valuation
EV/FCF analysis: MTCH: 11 /// BMBL: 7 /// GRND: 46
Method Used: Reverse DCF and DCF valuation
- Assuming it’s FCF in the TTM of 893 Billion USD, a 0% FCF growth over
the next 10 years, a terminal growth rate of 1.5% (in line with the US’s
GDP growth) and an conservative discount rate of 12% per year (average
of market being 10%), the stock should be trading at $30.34, close to its
current share price
- Using its current share price and assuming the same stats for WACC,
and TGR but applying next year’s expected FCF of $988M, we arrive that
the share price should be trading at around $33.57,
- Using these conservative assumptions, the company is currently

valued in a FCF increase of around 1% CAGR for the next 10 years, which,
considering everything stated above, including the opportunities the
company has and their risks, seems very pessimistic
- Using these same assumptions and assuming a very conservative FCF

growth of 3% CAGR, the company should be valued at around $37.00
Conclusion: Buy
Considering MTCH’s diverse portfolio of platforms and ability to satisfy
different types of customers around the globe and their plan to increase
ARPU, which, considering the mindset of always wanting more
gratification and willingness to pay more to increase their odds of
matching that dominates the consumer, they are being able to do
successfully, MTCH is slightly undervalued considering its price and
current/future cash flow generation

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Match Group (MTCH)

November 15, 2024

Management has been focusing on optimizing pricing of its subscription

The company’s efforts to increase ARPU and willingness to explore

Possible AI integrations to the algorithm will improve matching and

The company’s efforts to increase ARPU and willingness to explore

Possible AI integrations to the algorithm will improve matching and

Income Statement Overview

- EBITDA Q3 2023 x Q3 2024: 268M x 243M, driven by a severely

- Net Income Q3 2023 x Q3 2024: $163M x 136M, also driven by the

Balance Sheet Overview:

Statement of Cash Flows Overview

Method Used: Reverse DCF and DCF valuation

- Using these conservative assumptions, the company is currently

- Using these same assumptions and assuming a very conservative FCF

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