Match Group (MTCH +7%) is surging after the company reported
EBITDA above guidance for the eighth consecutive quarter. The online dating
leader also reported revenue above guidance for the sixth straight quarter.
Fourth quarter revenue grew 21% as average subscribers grew 17% to 8.23 mln and average revenue per user grew 4%.
Tinder continues to drive growth for the company. Average Tinder subscribers were up 40% to 4.35 mln. Tinder added 233K subs in the fourth quarter. That was better than expected because last quarter, management warned that Tinder subscriber additions would fall below its historical 200-250K average in the fourth quarter.
That average was before Tinder launched its Gold tiered service (eliminating the need to swipe to see matches), which led to a surge in subscribers and revenue and in the stock price as a result. However, lapping huge subscriber adds from one year ago created a tough comparison and the risk of elevated churn. The stock tumbled in response to the warning three months ago, but it turns out that management did a good job of conservatively lowering expectations in order to impress Wall Street this quarter.
Management attributed the better than expected subscriber performance to optimization efforts within the app (i.e. paywall tweaks and recommendation engine changes) and marketing spend. Tinder saw strength across the board.
Match actually raised its forecast for Tinder subscriber additions to 1 mln for 2019, which represents the high end of its outlook from three months ago calling for 200-250K adds per quarter.
Tinder pioneered modern online dating and remains the clear leader in the space. Tinder is the top grossing lifestyle app in over 100 countries. Management noted that there is a massive cultural shift regarding online dating. There remains significant opportunity as it is still an underpenetrated category with secular tailwinds. More than half of singles in North America and Europe have still never used an online dating product. That portion rises to two-thirds in the rest of the world. Among 18-24 year olds in the U.S., online dating penetration has risen to 47% from 16% over the last six years.
Meanwhile, Match acquired the remaining 49% of Hinge, which is growing rapidly with clear momentum. Downloads of the app, which targets a slightly older crowd relative to Tinder, were up 4x in the U.S.
Match reaffirmed its outlook for mid-teens revenue growth in 2019 and guided EBITDA up 17% at the midpoint, toward the high end of expectations.
With a $16 bln market value, Match currently trades with an enterprise value that is ~22x EBITDA estimates for 2019, which is far from cheap. However, free cash flow nearly doubled last year to $573 mln. Investors are willing to pay up for a company that is growing the top and bottom line with dominant market share, a long-perceived runway for growth, and a strong secular tailwind.
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