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Once upon a time, lonely people created creepy Craigslist ads and personals in the hopes of finding love. Now a wide-range of online-dating applications have figured out how to profit off of your happily ever after.
With Tinder, I can swipe right if I like him, and I swipe left if I am uninterested, successfully gamifying dating.
The holding group of Tinder, Match Group, will announce the IPO price after the market close today and begin trading on the secondary market on Thursday. Leading up to the IPO, is Match a stock to add to your portfolio?
The Match Group consists of popular dating sites like Match.com, OKCupid, Tinder, OurTime, ParPerfeito and PeopleMedia.
Prior to last month’s acquisition of PlentyofFish, it already had 20% of the Internet dating market. Some 59 million people visit one of the 45 differing sites of Match on a monthly basis.
The IPO is looking to raise $537 million. The shares are expected to price between $12 and $14 per share.
It has been a rocky year for tech startup IPOs with many choosing to delay their public debut. First Data Corp. (NYSE: FDC), one of the most recent tech IPOs, traded below its list price during its market debut. Now, investors are waiting to see how companies like Match.com and Square will perform to gauge if this will be a permanent trend for these highly valued private tech companies.
However, there is a twist that makes the Match.com notably different.
Spinoff from IAC/Interactive Group
Match is a spinoff of Barry Diller’s IAC/InterActiveCorp (NASDAQ: IACI), a conglomerate of different online consumer sites.
IAC has had great success with previous spinoffs, including Expedia (NASDAQ: EXPE). Expedia is up 551% since its August 2005 offering. LendingTree (NASDAQ: TREE) is up an incredible 1,497% since its spinoff from IAC.
In comparison, IAC itself is up 150% in the last 10 years.
Diller and IAC know what they are doing with spinoffs with a successful track record that could be enough persuasion to make a date with the Match Group IPO.
IAC will continue to hold majority control of the company after the offering. Diller’s company is keeping 84% of the shares.
High Growth Among Dating Apps
The question that investors are asking for this IPO is whether or not the growth for online dating is sustainable. Should the lack of paying customers be a concern?
The growth numbers in online dating are incredible. But, online dating is a new industry where high growth is expected.
Tinder, possibly the most disruptive dating app that has had booming growth rates, especially among millennials, was acquired my Match in March 2014.
Match’s acquisition frenzy is providing the fuel for more and more dating-world apps. New apps popular among millennials include Hinge, which connects to your Facebook profile to find possible matches through your network of friends. You can probably infer what another app called “Down” targets. With a swipe of your finger you can let someone know you want to get straight down to business right away.
The emergence of niche dating and hookup apps allows for a broader market appeal from young 20-somethings to mature adults. However, the risk posed by the constantly changing market and new online dating segments is diminishing returns.
Of those 59 million monthly users for Match platforms, only 4 million actually pay a fee on regular basis.
Anyone who has dabbled in online dating shouldn’t be surprised by this. You can swipe away for free on Tinder. It isn’t until you want to swipe anywhere in the world or correct a swipe that you must pay $9.99/month. If you are over 30, the subscription price doubles.
Like Tinder, most of the sites utilize a “freemium” revenue model. Certain features are free, but users can upgrade to a premium model.
Outlook for Match.com IPO
International users are one of the biggest segments for growth, however, they are less likely to pay for the premium features. Despite 24% user growth, international revenue is flat.
Despite the low growth of paying customers in some of the Match properties, the revenue from those few customers is sustainable. On average, a paying Match customer will spend $200 a year.
With people staying single longer, the online-dating industry isn’t getting any smaller. IAC spinoffs have had incredible returns in the past. I am confident that the Match.com will be added to the list of successful spinoffs with returns beating its parent company.
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