Has Match Group Stock Reached a Once-In-a-Decade Buying … – The Motley Fool

Has Match Group Stock Reached a Once-In-a-Decade Buying … – The Motley Fool

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Meeting a spouse online is no longer a rarity — 25% of engaged couples met online in 2021, according to The Knot. With that number increasing, it makes sense to look at the largest provider of apps in this space: Match Group (MTCH 0.54%).
Match Group owns some top dating apps, including Tinder, Hinge, Plenty of Fish, and many more. However, the stock has had a rough few years, falling more than 70% from its highs reached during the summer of 2021. With the stock down that much, is it worth an investment? Let’s find out.
As we move into 2023, investors will begin to better understand new CEO Bernard Kim’s vision for the company. After taking over on May 31 from Shar Dubey (who continues to serve on the board of directors), Kim — who comes from Zynga, the gaming app company — hasn’t had much time to execute his vision. With his prior background, he is well-versed in monetizing apps, so the potential for revenue increases in Match Group’s products is an exciting prospect.
One theme Kim relayed to investors in the third-quarter earnings letter is that 2023 will be challenging. But the company expects to grow revenue by 5% to 10% while cutting costs in lesser-performing products. Additionally, Kim’s counting on new Tinder leadership to accelerate year-over-year growth each quarter in 2023. This is a big deal because Tinder’s revenue slowed to a 6% growth rate in Q3, versus 18% in the first quarter and 13% in the second.
When your best-performing property doesn’t grow, it doesn’t bode well for the stock, which is why investors are concerned. However, with the price and the stock’s valuation, it may be worth a shot.
Match Group’s free cash flow (FCF) margin was an impressive 33% in Q3. Aside from having to pay a $441 million settlement in Q2 (which caused negative FCF), that margin was relatively consistent over the past 12 months.
In 2023, the average Wall Street analyst expects $3.52 billion in revenue, indicating $1.16 billion in FCF if its 33% margin holds. At Match Group’s current $12.9 billion market cap, that means the stock trades for an absurdly cheap 11.1 times 2023 FCF. That kind of valuation doesn’t come around often for a market-leading company that’s operating in a growing space.
So why is there so much pessimism about the stock? Many investors are concerned about Q3’s revenue growth of 1% and the guided 2.6% revenue drop in the fourth quarter. With how short-sighted the market has become, a one-year turnaround is too long for many people to hold a stock.
This short-term effect is caused by the advertising market. As companies tighten their spending because of economic fears, advertisement budgets get cut first. Match Group relies on advertising (as well as user subscriptions), so it will see a significant revenue boost when that effect is resolved.
When the market gets into a bearish short-termed trading pattern, long-term investors have the upper hand because they can buy companies for extremely low valuations and hold them until they feel it’s prudent to sell. With a 2023 turnaround in sight thanks to new management, Match Group looks like a fantastic buy at these levels — but only if you’re willing to hold the stock for three to five years. A more extended holding period will allow Match Group’s advertising revenue to return, and for investors to see how Kim’s plan guides the company.
Keithen Drury has positions in Match Group. The Motley Fool has positions in and recommends Match Group. The Motley Fool has a disclosure policy.
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