Dating Stocks Alert: Bob Peck Sets New Buys On Match, InterActiveCorp

SunTrust Robinson Humphrey’s Bob Peck initiated coverage of both Match Group Inc MTCH and IAC/InterActiveCorp IAC with Buy ratings, with price targets of $15 and $57, respectively.

The global market for dating services is estimated to be at $4.2 billion, with 75 percent of this being online, and the market is growing at an estimated 8 percent annually.  Peck mentioned the favorable demographic trends that were benefiting the dating market:

• Ubiquitous social networks
• Millennials becoming wage-earners with high disposable income
• Lower stigma associated with online dating
• Increase in median marriage age
• Higher propensity of usage in urban environments

Match Group

The company addresses a large and growing TAM and is a leader in a fragmented market, Peck said. He added that Match Group has an extensive portfolio that covers a wide range of users. The company could generate revenue growth and margin expansion, backed by its potential for incremental monetization. Moreover, the company has an experienced leadership team.

The analyst expects Match Group’s revenue to reach $1.4 billion in 2017, with a 17 percent CAGR. He believes this would be achieved with a CAGR of about 26 percent in paid member count growth from new monetization initiatives, higher conversion on improved mobile experience, and better international penetration.

SunTrust estimates adj. EBITDA growth at a CAGR of about 35 percent. Adj. EBITDA is expected to grow from ~$280 million, with margins of about 27 percent, in 2015 to reach ~ $510 million, with margins of about 36 percent, in 2017.

Related Link: Ditching Dating Stocks? Barclays Downgrades Match Group

IAC/InterActiveCorp

Saying that the company has an attractive portfolio of assets, Peck wrote, “IAC is an umbrella company with more than 150 online brands, including HomeAdvisor, Vimeo, About.com, and Match Group’s dating portfolio of 45 sites, which includes Match, OkCupid and Tinder.”

IAC has been acquiring companies in large addressable markets, ensuring that the multiples result in attractive returns. The company continues to look for new businesses, which are either complementary to its existing portfolio or form the core of a new category. IAC has about $1.5 billion of cash and $300 million of availability, and is likely to aggressively pursue M&As, the analyst commented.

Peck expects IAC's top line to grow a CAGR of about 6.2 percent to $3.6 billion in 2017. The company’s shares are trading at a meaningful discount to peers; and the risk-reward is attractive.

Image credit: Denis Bocquet, Flickr