About Match Group
Is it really possible to find love on Match Group’s platforms or is it all just one large algorithmic scam?
This is a question that will continue to plague mankind.
Ok, well, maybe not.
But it’s sort of a brilliant business idea.
Get a bunch of men and women on a platform (ultimately, it’s a database), have them provide some general information about themselves such as where they live, what they like to do and ultimately make them feel that this platform is for them.
By the way, when we say “this platform” we are referring to Match’s portfolio of dating apps such as the all too famous Tinder, the dating app that is apparently meant to be deleted, Hinge, the app seemingly tailored more towards older generations, Match, French dating platform Meetic, a Christian dating app by the name of Upward along with a few other niche dating app platforms through which individuals can just maybe find what they’re searching for.
Whatever that may happen to be.
Back to the brilliance of the business model.
In obtaining all of this data and personal information, Match is able to (likely through some somewhat high-tech algorithms) potentially pair people with those that have similar interests and ultimately, allow its users to opt to swipe left (decline) or swipe right (accept).
What a world we live in.
The brilliance lies within the waiting.
We’re almost certain that in the back of every user’s mind, there’s a little rational bird telling them that no matter how many times they swipe left or right, they might get one or two likes and then proceed to absolutely nothing in terms of meaningful engagement with someone on the other end.
However, as irrational, emotional humans, the other dirtier birdie pecks at them saying that the moment they concede and opt out of their monthly subscription plan is the same moment they’ve given up on love.
After all, that is the primary way in which Match makes money.
Decisions, decisions.
At any rate, among many other things this highlights the fact that this company has a naturally recession resistant business model, as those seeking love or any other sort of romantic or emotional connections will go to great lengths (i.e., pay up) for their chance to win the prize at hand.
That’s at least how we see it.
At the end of the day, our concern lies within whether or not this company’s stock is worth picking up shares in for the long haul given today’s share price.
Let’s see if we’re more inclined to swipe left or swipe right on Match Group’s stock (NASDAQ: MTCH)
Match’s stock financials
To get things kicked off, Match Group is a $9.37 billion conglomerate (according to its present market capitalization) with a share price of $33.55, a price-to-earnings (P/E) ratio of 27.81 and, like many other technology and software companies, doesn’t currently offer its shareholders a steady annual dividend.
Given this preliminary information, it appears as though Match Group’s stock (NASDAQ: MTCH) is modestly overvalued since it is generally held that a price-to-earnings ratio of 20 implies that a stock is trading at exactly fair value (or what it’s worth paying for today) and subsequently anything higher indicates that the stock is overvalued.
This appears to be the case with Match Group.
While this isn’t the most hoped for outcome as it relates to the company’s valuation, if there is considerable year-over-year (YOY) revenue growth behind this company, this heightened P/E ratio could be more than justified.
Let’s investigate further.
According to the company’s balance sheet, Match Group’s executive team is tasked with handling and properly managing approximately $4.2 billion in terms of total assets along with around $4.5 billion in terms of total liabilities.
While to us it isn’t all too alarming when a moat-filled technology company has a slightly total liability-heavy balance sheet structure, we are slightly puzzled as to why Match, a mature company in a relatively mature industry still has a sizable amount of total liabilities (compared to its total assets) on its books.
Perhaps it is due a recently strong dollar, perhaps it is a result of costs incurred from previous acquisitions.
Either way, we’re not going to lose any sleep over the total asset-total liability breakdown, however, we still will admit that we expected this company to have more in terms of total assets than total liabilities, even if not by a wide margin.
Onto the company’s income statement, Match’s total annual revenue since 2018 has seen steady, sustainable growth, starting at around $1.7 billion in 2018, rising to just north of $2 billion the following year, continuing its shallow ascent to its latest reported figure (on TD Ameritrade’s platform) of nearly $3.2 billion (2022).
Is this good growth?
You bet.
Does this good growth justify paying more than twenty times earnings for shares in the company’s stock?
Not from our perspective.
Credit must be given to this company and its team in that it has been able to generate meaningful growth through its revenue over the last five years, however, its current share price is still a bit too far ahead of its actual, intrinsic value.
Nevertheless, in addition to solid revenues, this company’s net income and total cash from operations (according to its cash flow statement) have been consistently positive during the same time interval, which is far from a bad sign.
For example, the company’s net income since 2018 has ranged from $277 million (2021) to a high of $554 million (2020) as well as its total cash from operations ranging from $526 million (2022) and $988 million (2018).
To us, this indicates that the company has little to no issue operating and generating cash during periods of recession or general economic turmoil, which largely validates our initial assumption that Match runs a recession resistant business model.
Match’s stock fundamentals
As it relates to Match Group’s trailing twelve month (TTM) net profit margin and how it measures up with the average of its industry peers, TD Ameritrade has Match’s at 11.36% and the industry’s average of 18.18%, which doesn’t exactly bode well for Match but at the end of the day, a TTM net profit margin north of 10% in general isn’t bad at all, especially for a company that is growing and has a comparably wide base through which it can operate.
We certainly hoped that it would’ve been a bit more competitive with the industry’s average, so much so that we’d plan on doing a little more research in hopes of finding out why this is the case, however, it absolutely will not keep us up at night.
Lastly, Match’s TTM returns on assets and investment(s) trail the industry’s averages as well (both by around 8%), but again this could be a byproduct of operating on a wide base and thus taking some time for the company to reap some of the tangible benefits of its recent and current investments.
If this is the case, we have no objections.
Should you buy Match Group stock?
Recession resistant but the core financials as a whole are underwhelming.
It would be silly if we neglected to give Match credit where credit is due in the sense that it has some very strong intellectual property and platforms through which it generates its revenue, and if shares of the company’s stock (NASDAQ: MTCH) were fairly priced or, of course, trading at a discount, we might consider picking up a few shares.
However, its mediocre financials paired with a more than mediocre valuation won’t get us up in the morning anytime soon.
We give this company’s stock a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.