If there’s on thing that won’t change in a volatile market, it’s human behavior. Whether it’s cycles of fear and greed, currency debasement, or euphoria and panic, one thing is constant over the centuries and even millennia, and that is people will react the same way to similar events quite predictably.
One constant through all the ups and downs is that humans will figure out a way to connect, no matter the economic climate. So, if you’re going to bet on one thing, love is a solid option and few companies connect people better and at greater scale than Match Group. So is it time to buy Match?
Lots Of Upside
We ran the numbers on Match Group and were pleasantly surprised. The first thing that stood out is how undervalued the company is relative to consensus expectations.
Analysts have pegged fair value at $78.77 per share, a significant upside opportunity from where the stock currently resides. When we ran the numbers we were a bit more pessimistic, but still arrived at a fair value of $62.50 per share, which suggests a 45.4% upside potential at the time of research.
Another interesting tidbit is that revenues didn’t take a backseat to economic gloom during the covid period of 2020-21. At a time when social distancing was in full force, Match managed to grow consistently.
The revenue growth over the past few years has been steady:
- 2019: 18.6%
- 2020: 16.6%
- 2021: 24.8%
Better yet, the forecasts are for significant growth over the coming years.
Top line sales are expected to hit:
- 2022: $3.2B
- 2023: $3.5B
- 2024: $4.0B
- 2025: $4.7B
- 2026: $5.3B
Why is Match expected to grow and grow and grow?
One reason is the industry itself is forecast to expand from $3.7B this year to around $6B over the next 6 years. And Match dominates the online dating industry with top brands like Tinder, OkCupid, and Hinge. While Tinder is perhaps the most famous of its brands, Match has seen other apps under its umbrella grow faster (closer to 30% vs 22% for Tinder).
Like any good company with a solid moat, Match Group enjoys a rock solid balance sheet that provides it ample fire power to quash or acquire fast-rising competitors. At last count, the company reported $463 million in cash reserves.
With that said long-term debt appears to hover around $3.8B from one quarter to the next, which poses a concern longer term if management cannot reduce the burden.
That heavy debt anchor might explain why the share price has taken a tumble this year. Last we looked, it was down 67.97% for the year, a decline in line with so many other stocks classified as “high growth”.
In this environment, the market simply won’t tolerate negative EPS or losses at all. But that’s where Match investors should enjoy some solace. The company has increased operating income over the past few years from:
- 2019: $652M
- 2020: $750M
- 2021: $859M
Skeptics will point to the blip in the most recent quarterly earnings report when management did report a loss of around $10M but savvy investors should note that was attributable to a one-time write-off. That’s important because it says the general operations of the company are sturdy, and the acquisition write-off is now water under the bridge.
The bottom line is if you’re willing to bet on love, and find a home with the dominant industry leader, Match Group has lots to like.