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As a veteran of the online dating world, one might say I take a personal interest in the upcoming Match.com IPO. For the few years I was bouncing around on these websites, all I could think was that they must be making a fortune. Now it appears that I, and you, may be able to invest in the greatest scheme on earth: charging people money to find love.
IAC/InterActiveCorp (NASDAQ: IACI) – which is one of my favorite stocks and was founded by one of my favorite investors, Barry Diller – plans to spin off its Match.com subsidiary as The Match Group. Diller has had great success with other spinoffs, including Expedia (NASDAQ: EXPE) among many others.
The Match Group will consist of Match.com, OKCupid, Tinder, OurTime, Meetic, Twoo, ParPerfeito and PeopleMedia. In the last quarter, the unit had revenues of $239 million, which was 31% of all of InterActiveCorp’s revenues and represented a 13% year-over-year increase. Fiscal year 2015 revenues are expected to hit $1.24 billion, up 18% YoY.
These are all spectacular growth numbers, and it comes as no surprise. Fifteen years ago, online dating was really just a lark. The newspaper personals were still dominant, and it had the most unbelievable stigma associated with it. Only losers posted in the personals.
That’s what is so incredible about online dating. Not only has it lost its stigma, but it is actually the preferred method of meeting someone these days. That’s how much the Internet has changed things, and the trajectory of this concept is only going up.
There’s another great thing about online dating – a never-ending supply of customers. Online dating is probably the closest analogy on the Internet to fossil fuels. It has likely become an intrinsic part of the human experience in the places it exists, and it won’t be going away … possibly ever.
Market research firm GfK MRI says the online dating market has doubled in just the past five years and will grow at 4.2% annually through 2019. As for the Match Group, Tinder – a dating app that allows users to chat with their “matches” – is the new big thing that came out when I left the online dating world. It hasn’t even been fully monetized and it is growing like a weed. It has 50 million users and saw a growth rate of 300% in 2014.
The only question I’m left with is just how much year-over-year growth this segment is going to experience. While there is an endless supply of consumers, at some point that supply gets tapped out and people just recirculate through the system. I don’t think this critical mass is anywhere close to being achieved, but I just wonder how much growth there is to be had.
So, do you buy in on the Match Group IPO? There’s a critical piece of information I haven’t shared yet. Only 20% of the unit’s shares are being offered, leaving the other 80% inside InterActiveCorp.
This leaves you with two options. You could buy into the pure-play IPO, which is likely to offer high risk and high reward. If growth peters out, other bad news hits or other competitors strike back, you could be in trouble.
Alternatively, you could buy InterActiveCorp stock. You still get 80% of the revenues from the unit, along with all the diversification offered by the rest of the conglomerate. To my taste, I always go with the more diversified play.
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