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Match Group a Strong Buy on Growing Clout of Dating Apps

Zacks Equity Research

Match Group, Inc. MTCH has demonstrated impressive performance on the bourses consistently over the past three years. The stock, which was valued at $14 three years back, currently trades close to $71, reflecting a five-fold jump.

Notably, the company has gained approximately 18.5% since it reported first-quarter 2019 results on May 7. Year to date, shares of Match Group have returned approximately 57.3% significantly outperforming the industry’s rally of 14%.

In the same period, this Zacks Rank #1 (Strong Buy) stock has outperformed S&P 500 index's growth of 19.6%.

Year to Date Price Performance

The outperformance can primarily be attributed to robust adoption of Tinder offering, which is driving financial performance. We note that Match Group has a positive earnings surprise of 20.24% in the trailing four quarters.

Key Drivers

Strong product portfolio comprising Tinder, Match.com, OkCupid (acquired in February 2011), Meetic, PlentyOfFish (acquired in July 2015) and Hinge are aiding Match Group's top line.

Tinder has been the key catalyst behind the company's year-over-year revenue growth. Direct revenues from Tinder grew 38% year over year in the last-reported quarter. Tinder average subscribers increased 36% year over year and came in at 4.7 million. This marked an increase of 384,000 sequentially and 1.3 million year over year.

Better-than-expected renewal rates for Gold remain a positive. In the first quarter, Average Revenue per Subscriber (ARPU) in Tinder grew 2% year over year, primarily due to Gold adoption.

Exploring Growth Opportunities in India to Augment Growth

Match Group is leaving no stone unturned to capitalize opportunities in India. The country is currently experiencing demographic dividend, wherein majority of the population is below 35 years of age. A burgeoning well educated middle class, increasing spending power and rapid adoption of smartphones are enhancing the company’s business prospects.

In the first quarter, management noted that with initial levels of investment in India, OkCupid downloads soared 600% year over year in first quarter. Tinder and OkCupid dating apps are becoming increasingly popular among single millennials in the country. Management notes that migration of youngsters to bigger cities and lessening allegiance to arranged marriage are favoring growth prospects in India.

Growing Internet penetration in overall South-east Asia and impending launch of Tinder Lite are expected to be tailwinds.

Encouraging Estimate Revisions

Over the last 60 days, fiscal 2019 estimates were revised 17.9% upward driving the Zacks Consensus Estimate to $1.91 per share. The figure reflects year-over-year growth of 25.7%.

Wrapping Up

Match Group is considered to have pioneered the concept of online dating, which is why it enjoys a first mover's advantage in this market. The company has been benefiting from increasing subscriber addition in the form of membership subscriptions.

With robust initiatives, expanding international presence and accretive acquisitions, Match Group is likely to gain further momentum.

We suggest investors to buy the stock as odds in favor of an upside at least in the near-term are high.

Other Key Picks

Some other top-ranked stocks worth considering in the broader sector are Rosetta Stone Inc. RST, Five9, Inc. FIVN and j2 Global, Inc. JCOM, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Rosetta Stone, Five9 and j2 Global is pegged at 12.5%, 10% and 8%, respectively.

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