Match Group Wins New Buy Rating On Stabilized Core, Tinder's Robust Growth

While Tinder, owned by Match Group Inc MTCH, is the fastest growing online dating app and seems to have “meaningful monetization potential,” the company’s core businesses have stabilized, Aegis Capital’s Victor Anthony said in a report. He initiated coverage of Match Group with a Buy rating and a price target of $20.

Match Group’s model “should continue to benefit from the rapid rise of Tinder, eventual, collective stabilization of the non-Tinder brands, the potential for advertising across the brands in the longer-term, strong cash conversion, and continued favorable secular industry dynamics,” analyst Anthony wrote.

Tinder Growth

Tinder’s paid subscriber base has expanded to over 1.5 million in just two years. Anthony expects the paid sub base to grow to 1.67 million by the end of this year, to 2.19 million by the end of 2017 and to 2.48 million by the end of 2018.

The analyst expects Tinder to generate $177 million in revenues this year, which could grow to $378 million in 2018, representing a CAGR of 29 percent.

“App tracking data continue to show that Tinder’s momentum is continuing into 4Q, which is a seasonally weak quarter for online dating, with app downloads, monthly active users (MAUs) and daily active users (DAUs) remaining strong,” Anthony pointed out.

Other Positives

Match Group’s core businesses are likely to stabilize in 2017 and resume growth thereafter.

Although the Tinder ad opportunity would probably not contribute meaningfully in 2017, it should “ramp significantly” thereafter, “when all the pieces of the ad business have been put in place,” the analyst stated. He added that the ad opportunity off Tinder would likely take longer to ramp, but management may find ways to monetize “via advertising as the industry-wide issues abate.”