Match Group

Match Group are a leading global provider of online dating products through applications and websites. Match operate a portfolio of brands including; Tinder, Match.com, PlentyOfFish, Meetic, Ok Cupid, OurTime, Pairs, Hinge and 30+ more. The apps are designed to increase user’s likelihood of finding a meaningful connection and the different products are tailored to meet varying preferences of users such as age, gender, geography, religion, and sensibility.

Match Group initially entered the online dating market through Match.com which was targeted towards a niche older demographic, strictly through desktop products with a paid subscription model. Match’s acquisition of Tinder in 2014 propelled the business into a new, fast growing, underpenetrated dating market targeting a wider demographic.

Strategy

Match Group had a first-mover advantage in the mobile ‘Swipe based’ dating market and used a freemium business model to attract many customers to their platform. This generated little revenue but the strategy enabled the core business of the group, Tinder to gain a platform effect.

The huge active user base, which is estimated to be in excess of 50m, has resulted in significant barriers to entry for other businesses attempting to compete. Moreover, as more users are on Tinder, it has created a stronger user experience as the more people on the platform has increased the chance of a customer successfully finding a partner.  The platform effect has also created consumer stickiness as the cost-to-benefit of switching to a similar product may not be worthwhile for customers.

Match group have taken a portfolio approach by acquiring competitors in different geographies and market segments at an early stage. This has enabled Match to gain new market share in other countries, reduce the reliance on a single product, reduce competition, and gain upside on switching trends in the industry.

Economics

Tinder has translated its freemium model into a premium model where customers can subscribe to access premium features. Features include unlimited restrictions on the app and boosting of an individual’s profile, so it is more visible to others. Tinder has seen extremely strong growth in the number of paying subscribers since they launched their premium product in 2015 with more than 6 million paying users having grown at 69% CAGR. Match have also demonstrated the ability to upsell and price up over time with ARPU growing at 31% and low levels of customer churn.

Middleton Enterprises (MEL) perceive the customer stickiness and economics of a customer and the high levels of cash conversion of the business model to be very attractive. As a software business Match can scale quickly, and a large portion of costs will be fixed and unaffected by increasing customer numbers which is well suiting with MEL’s core investment philosophy.

There is still significant runway for Match to grow. Current customers can convert to paying customers and structural drivers including internet penetration and normalisation of online dating will enable continued growth of new customers. MEL have also highlighted a potential increase in the pace of penetration in light of COVID-19.

Financials/KPI’s

Match have extremely consistent and fast growing KPI’s which has translated to strong financial performance, placing Match in the top quartile on the MEL Quality rank.

The graph below illustrates how Match have consistently gained subscribers and increased ARPU over time.

Match Group have competitive edges in a fast-growing market estimated to be worth in excess of $6bn annually and growing at 6% CAGR. Much like MEL’s other investments this company has taken advantage of technology to revolutionise an industry. The product has replaced an outdated dating method of dating, stigma has reduced, and declining marriage pressure is increasing the LTV of a customer.

The market is still underpenetrated, monetization is still in its infancy and innovation within the industry may lead to more value-added, in turn increasing ARPU.  The subscription-based revenue model allows for consistent, measurable performance and their software-based products will allow for expanding margins as they scale larger.

Middleton Enterprises perceive Match as a strong long opportunity for growth investors.