Online dating leader Match (NASDAQ:MTCH) reported mixed fourth-quarter numbers this week, and investors weren’t too impressed. MTCH stock gave back nearly 8% on the news.
But here’s the good part: This dip in Match stock is a golden buying opportunity.
Match’s earnings were broadly good. But, more importantly, this remains the unrivaled leader in the online dating space — a space that, boosted by Covid-19, will one day be massive.
When that day comes, Match will become “the Facebook of online dating.”
Despite the stock price slump, the quarter didn’t change anything about Match’s growth narrative. All it did was put MTCH stock on sale, making it undervalued relative to its profit growth potential.
As such, the investment implication here is simple: Buy the dip in MTCH stock.
MTCH Stock: Strong Earnings
Match’s fourth-quarter report was — despite the headline misses — very good.
The company reported 11.5% subscriber growth in the quarter, consistent with the growth rates the company has reported all pandemic long. Average revenue per user rose about 5%, also consistent with pandemic trends. This powered a very healthy 19% rise in revenues in the quarter.
Sure, operating margins did slip back some in the quarter, falling about 50 basis points year-over-year. And the full-year 2021 revenue guide came in on the low-side expectations. But these minor “misses” do nothing to impact the big picture which remains very positive.
Big Picture Remains Positive
At a high level, Match is the Facebook of the dating world.
Facebook developed and acquired a suite of social media apps which today constitute four of the most used social media apps in the world. The company is consequently the unrivaled global giant in social media.
Similarly, Match has developed and acquired five of the six most popular online dating apps, including Match.com, Tinder, OKCupid, Hinge and PlentyOfFish, with many emerging dating apps — like Chispa and BLK — in the pipeline (the only big dating app not in the Match wheelhouse is Bumble).
See the similarities?
Facebook owns the world’s most popular social media apps. Match owns the world’s most popular online dating apps.
That’s important, because the online dating industry is growing rapidly, as consumers are increasingly digitizing dating.
About 30% of Americans have used an online dating app before. That number is rising. So is the number of consumers who are willing to pay for premium online dating services. Perhaps more importantly, the potential for this market is enormous, because there are a lot of single people in the world, almost all of them date, almost all of them are young (so they are used to using technology and like digital experiences), and not many of them use online dating today.
Net net, Match is the Facebook of a hypergrowth online dating market with significant long-term potential.
Sound like a winning recipe for MTCH stock?
Match Stock Is Undervalued
Thanks to its favorable competitive positioning in a booming market, Match has big long-term profit growth potential over the next decade.
Over the next 10 years, online dating usage will continue to rise at a healthy pace and Match will continue to expand its portfolio of apps into international markets. As that happens, the company should be able to sustain double-digit subscriber growth.
On top of that, average revenue per subscriber should march higher at a mid single-digit pace as Match rolls out more and more upsell features across its various online dating apps, powering what should be somewhere around ~15% revenue growth.
That’s enough revenue growth to drive meaningfully positive operating leverage in this highly scalable, software-centric business model, since Match’s expenses will probably only need to rise at a ~10% pace to support ~15% revenue growth.
Net net, Match should be able to power 20%-plus profit growth over the next 10 years.
Assuming so, my modeling pegs Match’s 2030 earnings power at around $12.50 per share. Based on a 25X forward earnings multiple and an 8% annual discount rate, that implies a 2021 price target for MTCH stock of about $170.
The MTCH stock price today sits below $140.
Bottom Line on MTCH Stock
Match is a long-term winner. The company’s earnings weren’t so great. Oh well. It happens. Great companies sometimes have not-so-great earnings reports. When they do, the stock drops — and 99% of the time, it’s a great buying opportunity.
This won’t be that 1% of the time.
So buy MTCH stock while it’s on sale.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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