Match Group (MTCH) Up 3.8% Since Last Earnings Report: Can It Continue?

It’s been a month since Match Group’s (MTCH) last earnings report. Shares rose about 3.8% in that time, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Match Group headed for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to better understand the important catalysts.

Match Group’s third-quarter earnings decline y/y, Tinder drives revenue growth

Match Group reported third-quarter 2020 earnings of 45 cents per share, down 13% from the prior-year quarter.

Nevertheless, revenues of $639.8 million increased 18% year-over-year.

Tinder’s continued momentum and solid performance from Hinge, Pairs and OkCupid are driving revenue growth. Excluding the impact of currency effects, revenues increased 18% year-over-year to $636.7 million, driven by growth in the average subscriber base.

It is worth noting that since the outbreak of the Covid-19 epidemic, activity and engagement of all brands have been high, especially in Western markets.

Quarter details

The average subscriber base increased 12% to 10.8 million and average revenue per user (ARPU) increased 4% year over year to 62 cents.

The North American subscriber base increased 9% to 5.1 million, while the North American subscriber base increased 16% to 5.7 million. Improvements in the North American subscriber base were driven by Tinder, Chispa, Hinge and BLK. Internationally, growth was driven by Tinder, as well as the Pairs and Meetic apps.

North American ARPU increased 8% to 66 cents, while international ARPU increased 1% to 58 cents. ARPU growth in North America was driven by increased purchases of à la carte services on Tinder, PlentyofFish and Hinge. Additionally, Hinge’s pricing improvements contributed to ARPU growth in North America.

The company is constantly expanding its operations on international markets. The company has rolled out the Tinder Platinum subscription service (test version) in 10 countries. It expects to launch its subscription service in more countries in the fourth quarter of 2020. Recently, the company presented Upward, an application aimed at the Christian community.

Moreover, Tinder’s solid average subscriber grew 16% year-over-year to 6.6 million, contributing to quarterly results. However, Tinder APRU declined 1% in the third quarter.

Tinder’s direct revenue increased 15% year-over-year. In September 2020, the company launched the Swipe Night series in 24 countries and relaunched the feature in the United States. The Swipe Night feature helped Tinder increase daily usage, with viewership reaching 15 million thanks to traction on the Swipe Night series.

Direct revenue from non-Tinder brands grew a total of 23% year-over-year. Non-Tinder brands saw a 13% increase in ARPU, along with a 7% increase in average subscribers and one-to-many video revenue share from non-subscribers.

Importantly, Hinge’s ARPU increased by over 100% year over year in the third quarter. The introduction of two à la carte features accelerated Hinge’s ARPU growth.

Moreover, Match Group’s dating app – Plenty of Fish – has recorded 5.5 million users thanks to its one-to-many live streaming service, which encourages members to maintain social distancing while dating amid the coronavirus pandemic.

Adjusted EBITDA was $249.2 million, up 21% year-over-year. Adjusted EBITDA margin increased 110 basis points (bps) year-over-year to 39%.

Total operating costs and expenses as a percentage of revenue increased by 100 basis points (bps) year over year to reach 69% in the reported quarter. This was due to an increase in sales and marketing expenses and general and administrative expenses, partially offset by a decrease in travel expenses.

Operating income increased 14.2% compared to the same period in the previous quarter to $200.2 million. Operating margin declined 100 basis points to 31%.

Balance sheet and cash flow

As of September 30, 2020, Match Group had a balance of cash and cash equivalents of $399 million compared to $129.3 million as of June 30, 2020. As of September 30, 2020, the company had long-term debt of $3.52 billion compared to $3.53 billion as of June 30, 2020.

As of September 30, 2020, the company also recorded $1.7 billion in convertible senior notes. As of September 30, 2020, the company had a revolving credit facility worth USD 750 million. As of September 30, 2020, this amount had not been used.

For the nine months ended September 30, 2020, the company generated operating cash flow of $518.9 million compared to $468.3 million for the nine months ended September 30, 2019. For the nine months ended September 30, 2020, free cash flow cash was USD 486.5 million compared to USD 438 million in the nine months ended September 30, 2019.

Conductivity

Match Group expects fourth-quarter revenue of $640 million to $650 million. Adjusted EBITDA is expected to be $235 million to $245 million.

How have estimates changed since then?

It turns out that the estimate review has been trending downward over the past month. As a result of these changes, the consensus estimate moved by -15.63%.

VGM results

Right now, Match Group has a solid Growth Score of B, although well behind its Momentum Score of D. Following the exact same trajectory, the stock is rated a D on the value side, putting it in the bottom 40% for this strategy investment.

Overall, the stock has a Total VGM Score of C. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. No wonder Match Group has a Zacks Rank #4 (Sell). We expect a below-average rate of return on stocks in the coming months.

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