Match Group Introduces Changes To Thwart The Threat Of Competitors

Match Group, Inc. (MTCH), the parent company of popular dating apps such as Tinder, Pairs, OkCupid, Hinge, and PlentyofFish, announced on March 15 the decision to acquire Garbo, a non-profit platform that helps users run background checks on individuals. In a press release, Match Group confirmed that Tinder users will have access to Garbo to run background checks on their potential dates by the end of this year, and the company is planning to roll out this feature on its other dating apps as well.

Investors already seem to be divided on the prospects of this new feature. Although this new addition will make online dating apps safer for many women, some argue that users will decide to quit Tinder because of privacy concerns, resulting in a decline in revenue for Match Group.

Short-Term Pains Will Be Converted Into Long-Term Gains

The introduction of background checks might initially lead to a decline in the number of users, but in the long run, Match Group stands to benefit from this decision. Bumble (BMBL), which recently made its U.S. market debut, is a significant competitor and has recently gained traction as it requires women to make the first move on the dating app. Match Group’s decision to implement background checks will help the company thwart the threat from the likes of Bumble in the long run by establishing itself as an innovative and women-friendly dating solutions provider.

This move will also help Match Group gain traction in emerging regions such as Asia and Latin America as safety concerns have prevented many women from using online dating apps in the past. According to a recent research report published by 360i Research, the Asia-Pacific region will be the fastest growing online dating market through 2025 due to favorable demographics such as the increasing internet penetration rate and the high concentration of young people in this region.

The Resilient Business Model

With mobility restrictions in all major regions of the world in the first half of 2020, Match Group initially took a massive hit as its userbase found no reason to be active on dating apps. The company, however, was quick to react to this negative development by introducing various features such as video messaging, as well as a free trial for the Passport feature that allows users to connect with their matches regardless of their geolocation.

These strategies paid off handsomely in 2020, which is evident from the 17% year-over-year growth in total revenue and 15% growth in EBITDA. Match Group’s dating products remained relevant during a very challenging year, which is a testament to the competitive advantages enjoyed by the company as the world’s largest online dating solutions provider.

Match Group Is Spreading Its Wings

Timely and value accretive acquisitions have also played a major role in Match Group’s dominance within the online dating industry, and the company is laser-focused on executing this strategy to gain market share in the fast-growing Asian region.

On Feb. 9, the company announced the acquisition of Hyperconnect, a leading social media and video technology company based in South Korea, for $1.725 billion. Hyperconnect operates Azar, which is the highest-grossing one-on-one live video app in the world. It also operates Hakuna, which is an interactive social media app that is popular in Korea for group video chats and broadcasts. This acquisition will help Match Group expand its presence in the all-important Asian region, reflecting a potential catalyst for growth in the future.

Wall Street’s Take

MTCH’s Moderate Buy consensus rating breaks down into 8 Buys and 3 Holds. The average analyst price target of $163.82 for Match Group shares implies an upside potential of just 7% from the current market price.

The recent acquisitions and the strong demand for online dating apps expected in the second half of this year are likely to push the stock to new highs, and upward revisions from analysts are in the cards. (See Match Group stock analysis on TipRanks)

Takeaway

Match Group is a leader in the global online dating industry, but the competition is intensifying. That said, the recent decision to offer background checks will help Tinder and other Match Group-owned platforms remain competitive in the future, and this creates a strong position for the company to gain market share in emerging regions that are yet to embrace online dating apps because of safety concerns.

Disclosure: Dilantha De Silva did not have any positions in any of the stocks mentioned in this article at the time of publication.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.