Why Match Stock Will Weather the Coronavirus Storm

Alongside the rest of the market, the shares of online dating behemoth Match (NASDAQ:MTCH) have plunged over the past six weeks as the novel coronavirus pandemic has brought the global economy to a screeching halt. MTCH stock went from $95 in mid-January to $45 in mid-March.

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But as the number of new coronavirus cases in the U.S. has started to level off over the past few days, the market has bounced back. MTCH stock has followed suit.

In the past two weeks, MTCH stock has rallied from $45 to $68.

Did you miss the chance to buy the shares?

Somewhat. Match stock was an absolute steal at $45 in mid-March. But it’s still somewhat attractive at this point. Here’s why:

• Match is growing rapidly and dominating a non-cyclical growth industry. Through its portfolio of dating apps and platforms, Match has created a monopoly of sorts in the online dating game.  That industry is only rising in usage and popularity as consumers increasingly digitize their experiences.
• The company has tremendous profit growth potential over the long-term. Thanks to its dominant positioning in the non-cyclical online dating industry and its favorable margins, Match’s profits can jump tremendously over the next five to ten years.
• Match’s main revenue source is insulated from coronavirus-related economic disruptions. Match makes 98% of its revenue from consumer subscriptions, and those sales shouldn’t be significantly disrupted by the coronavirus.
• All things considered, $70 is a fair price tag for Match stock. According to my ten-year forecast for Match, $70 is an appropriate valuation for Match.

Match Is Growing Rapidly

For all intents and purposes, Match is the Facebook (NASDAQ:FB) of the dating world.

Facebook developed and acquired a suite of social media apps which constitute four of the most used social media apps in the world Similarly, Match has developed and acquired five of the six most popular online dating apps. (Match.com, Tinder, OKCupid, Hinge, and PlentyOfFish are all owned by Match. Bumble is the only popular dating app it doesn’t own. ).

Match is the dominant player in the online dating industry.

That industry is growing rapidly, as consumers are increasingly digitizing dating. About 30% of Americans have used an online dating app before. That number is growing. The other number that is growing is the number of consumers who are willing to pay for premium online dating services.

As more consumers pivot towards online dating — and as more online daters subscribe to premium services — the online dating industry will grow, boosting Match’s revenues.

Tons of Long-Term Potential

Thanks to its robust revenue growth potential and its favorable margins, Match’s long-term profit growth prospects are enormous.

Over the past several years, Match has sustained 15%-plus revenue growth. It’s also generated double-digit-percentage subscriber growth and mid-single-digit-percentage average revenue per subscriber growth. Given the company’s positive catalysts, both of these trends should persist. Over the next five to ten years, healthy subscriber and unit revenue growth will power 10%-plus revenue growth by Match.

Meanwhile, the company has 70%-plus gross margins, while its operating expenses have risen roughly 10% annually because Match doesn’t need to spend an arm and a leg to beat its competition. This combination of high gross margins and low expenses paves a path for huge overall profit margins down the road.

Given these points, Match looks poised to grow its profits  by 15%-plus annually for the next five to ten years.

Attractively Insulated From Coronavirus

Unlike a majority of other digital media platforms, Match does not obtain most of its revenue from ads.

Only about 2% of Match’s revenues come from ads. The other 98% of its sales come from subscriptions.

Match has reported that “[n]ew users, especially over the age of 30, have been less inclined to sign up for our products” amid the coronavirus pandemic. The company consequently expects its first-quarter revenue to come in at the low end of its guidance. Clearly, the company is not immune to disruption from the coronavirus.

But consumer subscriptions should be impacted far less than digital ad sales during this turbulent time. As a result, relative to other high-growth digital media platforms, Match is attractive at this point.

Fairly Valued

According to my modeling, MTCH stock is fairly valued in the $70 range today.

Incorporating the coronavirus disruption into my long-term model, I’ve revised my 2020 estimates lower to account for slower-than-usual average revenue per subscriber growth. My longer-term estimates for the company have also come down slightly.

By 2030, I see the company netting earnings per share of $9. Based on a P/E ratio of 20 in 2030 and a 10% annual discount rate, that equates to a 2020 price target for MTCH stock of over $75.

Thus, where MTCH stock trades today — right around $70 — feels fair for a high-growth, high-margin company with strong competitive advantages like Match.

The Bottom Line on MTCH Stock

Match is a winning company, with a lot of attractive attributes. Unfortunately, the best time to buy MTCH stock has already come and gone.

But the stock is still somewhat attractive. Investors who buy the shares now will make money over the next 12 months and over the next five years. The amount of the gains, however, will be somewhat limited.