The Bear Market Is Providing a Once-in-a-Generation Buying Opportunity for This Internet Stock
The S&P 500 is down about 20% in 2022. It’s one of the worst years on record for stocks and the biggest annual drop in the index since the Great Financial Crisis of 2008. But looking under the hood, things were much worse for some. individual stocks, with 25 stocks down at least 50% in 2022.
The second worst performer of 2022 is online dating company Match Group (MTCH 0.97%), which has fallen 69% this year. The owner of Tinder, Hinge and other online dating properties has gone through an executive transition and is currently facing major foreign currency headwinds, pushing investors away from the stock.
Investors dumped Match Group in 2022. Here’s why this sale is misguided and why you should consider adding the online dating company to your portfolio.
Match Group: galleys in 2022
To provide context, investors should understand why Match Group shares have performed so poorly in 2022. First, they underwent a CEO transition when Shar Dubey retired earlier this year. The board has named Bernard Kim – a former executive at mobile games company Zynga – as the company’s new leader. After coming on board, Kim took a good look at the operations of Match Group’s various dating properties and didn’t like the way things were going.
He then fired Tinder’s management team due to poor product development and monetization and brought in a new group to lead the division. These failures will hurt Tinder’s revenue growth in the coming quarters. Since Tinder generates the majority of Match Group’s revenue, this will also have a big impact on the company’s overall revenue growth.
In addition to Tinder’s failures, Match Group faces significant currency headwinds due to the rising US dollar. Since Match Group is a global company but publishes its financial statements in US dollars, changes in exchange rates can positively or negatively affect its revenue growth. In 2022, revenue growth faces a double-digit currency headwind.
Add those two factors up and Match Group now expects Tinder direct revenue to be flat year-over-year in Q4 2022, which is a huge slowdown from the 23% growth l last year. Wall Street hates when revenue growth unexpectedly slows, so it’s no surprise Match Group shares fell in 2022.
Why 2023 will be better
You can’t blame short-term traders for selling Match Group through the end of 2022. The company is poised to post poor results that may not improve for a few quarters. But if you’re a long-term investor with a multi-year time horizon, Match Group’s business looks healthy right now.
First, exchange rate headwinds are unlikely to have as much impact over the next few years. In the third quarter, Tinder’s revenue grew 16% year-over-year on a currency-neutral basis, but 6% year-over-year in US dollars. This likely won’t be repeated in 2023 and should help the company accelerate revenue growth through 2023.
Second, there is still a long-term opportunity for online dating to gain popularity around the world. Tinder, if it can resolve its product issues with this new team in place, is poised to benefit from this growth as it remains the leading dating app in the majority of markets.
Third, Match Group has a promising new app in Hinge that can drive revenue growth for many years to come. The app is aimed at more relationship-oriented daters and has gained popularity in English-speaking markets. In 2022, management expects the app to generate around $300 million in revenue.
Over the next few years, Hinge will expand into more international markets and focus on monetization, which should lead to steady revenue growth. Combine that with Tinder’s steady growth, and Match Group looks set to grow revenue by double digits for the foreseeable future.
The stock is very cheap
Match Group shares are cheap right now, especially considering its long-term growth opportunity. With a market cap of $11.6 billion and operating income of $641 million (I’m not using net income due to a one-time litigation payment in 2022), the stock trades at an earnings multiple of just 18, below the market’s average earnings multiple. of 20.
MTCH Operating Revenue (TTM) Data by YCharts
For a company facing significant short-term headwinds and a strong industry tailwind, this seems like a discount for shareholders who have a time horizon of more than a few quarters. If you believe in the growth of the online dating market, now is the time to hold your nose, dive in and buy Match Group stock.