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Love is Universal,
Match.com Operates in Over 190 Countries

The emergence of social media has definitely impacted one corner of human relationships: dating, says Douglas Gerlach, editor of Investor Advisory Service, one of the Nation’s Top-Performing Stock Investment Newsletters. According to Match Group, Inc. (NASDAQ: MTCH), the industry leader in online dating, 53% of single people living in the U.S. have created an online dating profile and 40% of singles have dated someone they met online. Further reinforcing this trend is the demographically large millennial generation, born roughly in the early 1980’s through the mid-2000’s.

Millennials are 30% more likely than any other generation to want to find a relationship and they are using technology to do it. They are 75% more likely than baby boomers to have dated someone online and 57% more likely than those of other generations to have created an online profile.

To measure the growth of global dating, Match has compiled research from online market researcher Research Now, the United Nations, World Bank, and The Economist Intelligence Unit. In 2011, about 360 million singles were online. By late 2016, roughly 511 million singles were online. This is expected to grow to 672 million singles by 2019, roughly 10% per year.

Match became a public company in April 2016 after being spun off from Internet media company IAC/InterActiveCorp. Over the past 20+ years through a series of acquisitions, the firm now operates 45 brands with products in 38 languages in over 190 countries.

Six key brands contribute almost all of Match’s earnings. The firm’s flagship dating website, match.com, was launched in 1995 and created the online dating category. The user base has a relatively balanced age distribution and sales are generated mostly through paid subscriptions. Tinder, launched in 2012, has grown rapidly and is a free application that appeals to millennials.

Users can pay to access more features on the site. PlentyOfFish was launched in 2003 and acquired in 2015. It is similar to match.com with appeal in the central U.S., Canada, the U.K., and other international markets. Meetic was founded in 2001 and is similar to match.com serving the European markets. OkCupid has a loyal user base in major U.S. cities that tends to appeal to younger users. Affinity websites focus on over 50 communities that share similar ages, ethnicities, religions, or other connections. Examples include OurTime, focused on singles over 50 years old, and BlackPeopleMeet.

Match had a solid first full year as a public company. Overall 2016 sales grew 20%, led by 23% growth from the dating segment that made up 91% of sales. The other 9% came from the Princeton Review Group, a provider of test preparation, academic tutoring, and college counseling services, which saw sales fall 6%. Margin expansion and expense leverage saw operating income for dating grow 48%. Meanwhile, the Princeton Review Group recorded an operating loss of $9.6 million. On March 31, Match completed the sale of the Princeton Review Group to ST Unitas, a global education technology company. This sale will cause weaker year-on-year sales growth comparisons, but will improve profitability going forward.

The firm’s growth initiatives include both organic means and acquisitions that target market niches and geographic expansion. Match is in the early stages of monetizing its Tinder mobile application which is now the 4th most popular download on the iOS (Apple) and Google Play stores. Technology opportunities for sales growth include charging users for video, location services, and other data-centric information. Match is also considering advertising that targets free users depending on brand. Underpenetrated international markets targeted for growth include India, Russia, Eastern Europe, South Korea, and Japan.

There are several risks to holding Match shares. Social media users show little loyalty and are constantly looking for the next application. To mitigate this risk we like Match’s diversity of leading brands. Post-spinoff, IAC owns Class B voting shares which give it majority control over shareholder actions. The firm’s debt-to-equity ratio is a lofty 2.4, but Match’s substantial cash flow and low capital needs should allow deleveraging. As an example, the firm paid off $40 million of debt in the fourth quarter of 2016.

We think Match can grow its EPS 17% per year. Five years of this earnings growth would imply EPS of $1.40 and, when coupled with an average high P/E of 27.8, shares could reach 39. For a low price estimate, we use 2016’s EPS of $0.64 and multiply by the average low P/E of 16.3 to generate a low price of 10. The upside/downside ratio is 3.2 to 1 and compounded annual return potential is 17%.

Editor’s Note: Douglas Gerlach is editor of Investor Advisory Service, rated one of the nation’s top-performing stock investment newsletters by the Hulbert Financial Digest. Each month you will receive 3 stock recommendations; in-depth profiles of recommended companies; economic and market trends, and what they mean to you, in plain English plus Updates. For a free online sample issue of the award-winning newsletter visit www.InvestorAdvisoryService.com.


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