Technology stocks have rallied in 2023. Match Group (MTCH 0.63%) is one of the few companies that hasn't joined the party. The leading online dating company has seen its shares fall 32% in the last year while the Nasdaq-100 index has soared 21%. Investors have soured on the once-hot stock due to a narrative of saturation at its flagship Tinder app, slowing revenue growth, and declining profit margins.
However, if you look at the underlying business, Match Group's financials are fine and look set to improve in the coming quarters. Combined with a new robust share repurchase program, is Match Group stock a can't miss buying opportunity at these depressed prices? Let's take a closer look.
Data by YCharts.
Strong Q2 results
After new leadership took over the business last year -- specifically CEO Bernard Kim -- investors were made aware of major problems plaguing Match Group's important Tinder business. After years of product stagnation and a lack of marketing presence, Tinder started to see user growth stagnate in many markets. Kim decided to fire the entire Tinder team once he became CEO and brought in new managers to fix these issues.
Kim and the new team decided to rip the bandage off as they scrapped its entire monetization roadmap for the second half of 2022 and went back to the drawing board from a product, marketing, and monetization perspective. Tinder's financials stagnated due to these changes with revenue down slightly in the fourth quarter of 2022 and the first quarter of this year. But management thinks this was the right move long-term, and it has set up a plan to get Tinder to grow sustainably again.
That plan includes brand marketing for the business, a revamp of its monetization strategy (adding weekly subscriptions and raising prices, plus more in the coming quarters), and a focus on improving the customer experience for female users.
Now, we are finally starting to see the fruits of these efforts materialize. Tinder's revenue grew 6% year over year in the second quarter, usage among women is growing, and the chart of new daily users has started to move in the right direction. Management expects Tinder's revenue growth to reach "solidly double-
digit" levels by the fourth quarter. Making up over 50% of the company's sales and at high margins, this will be vital for Match Group to get its earnings growing again. As you can see below, the company's free cash flow has stagnated in recent years, a big reason for the stock price falling.
Data by YCharts.
Improvements working across the board
The Tinder turnaround is working, but that is not the only product under the Match Group umbrella. It is working to improve a lot of its smaller applications with major recent successes as well.
Most important is Hinge, a relationship-focused dating application that has exploded in popularity in English-speaking markets in recent years. Match Group is bringing the app to more markets going forward, starting with Europe, and then plans to expand into India in 2024. The app is on track to do $400 million in revenue this year. This is still small compared to Tinder ($1.8 billion in 2022 revenue), but Hinge is growing quickly and has a long runway ahead of it as it expands globally.
Outside of Hinge, Match Group has seen its ill-timed acquisition of Hyperconnect return to growth this year and has revamped its strategy with legacy brands such as Match.com to run them for cash flow instead of trying to grow users. Both of these changes will have a positive impact on earnings growth in the coming years.
One thing to watch in the near term is any commentary on the Japanese market. Match Group has the two dominant apps in that region (Tinder and Pairs), which have seen depressed dating app engagement due to intense lockdowns during the COVID-19 pandemic. Unlike other markets, activity has not recovered to pre-pandemic levels, which is presenting a headwind to monetization. If the market finally turns, this could provide another boost for Match Group's overall revenue growth.
So, is the stock a buy?
Match Group has a market cap of about $12 billion as of this writing, and the stock sports a forward price-to-earnings (P/E) ratio of 12.9. That looks mighty cheap for an industry-leading business that's expecting improving growth and margins.
Investors shouldn't overlook management's share repurchases, either. Match Group has committed to taking at least 50% of its excess cash flow and repurchasing its stock with $300 million spent this quarter alone. This should start to steadily reduce shares outstanding and give a nice boost to earnings-per-share growth going forward. Add all this up, and Match Group stock looks like a compelling buy at these price levels.
