TLDR;
This video provides an analysis of Match Group Inc., a conglomerate owning various dating apps and websites like Tinder and Hinge. It examines their financials, focusing on revenue growth, operating income, and cash flow. The analysis includes a discounted cash flow model to estimate the fair value of the stock, considering factors like revenue growth, profit margins, and debt. The video concludes with two potential scenarios for Match Group: one of continued struggles due to increasing costs and competition, and another of a successful turnaround with improved growth and margins.
- Match Group's revenue growth has slowed down, and operating income decreased in 2022.
- Tinder is their main source of revenue, while Hinge shows significant growth.
- The analysis emphasizes the importance of monitoring margins (gross profit, operating, net profit, and free cash flow) to assess the company's financial health.
Introduction to Match Group [0:00]
Match Group is a conglomerate that owns a variety of dating apps and websites, including well-known platforms like Tinder and Hinge, as well as more established dating sites such as Plenty of Fish and match.com. The company's business model revolves around connecting people for dating and relationships through its diverse portfolio of online platforms. The video transitions directly into an examination of Match Group's financial performance.
Revenue Growth and Operating Income [0:42]
Match Group has experienced revenue growth from 2018 to 2022, but the growth rate slowed down in the most recent year. Tinder is the primary revenue driver, supplemented by "Evergreen" apps like match.com and Plenty of Fish, as well as emerging apps like Hinge. Operating income decreased significantly in 2022, despite previous increases. The presenter expresses skepticism about the company's "adjusted operating income" metric, arguing that it includes items like stock-based compensation and depreciation/amortization, which are already accounted for in other financial measures.
Revenue Breakdown by Region and App [3:13]
Match Group's revenue is distributed across the Americas, Europe, and Asia Pacific regions. Tinder is the largest revenue-generating app, while Hinge is experiencing rapid growth. The growth rate of Hinge was particularly high between 2020 and 2021 due to the global situation, but it has since moderated. The future growth of Match Group will depend on the performance of its various apps and the expansion into untapped markets like the Asia Pacific region.
Statement of Operations Analysis [4:49]
An analysis of Match Group's statement of operations reveals that while net earnings have been increasing, operating income has been volatile. Marketing expenses have remained relatively flat, while selling, general, and administrative expenses, as well as product development expenses, have increased due to higher wages and investments in new apps. The presenter emphasizes the importance of a healthy operating income for sustaining the bottom line, especially considering potential fluctuations in tax benefits and one-time payments.
Rising Costs and App Purchase Fees [6:03]
Match Group's cost of revenue has been increasing as a percentage of total revenue, primarily due to higher app purchase fees in the Google Play store and costs associated with acquisitions. These rising costs reduce the amount of money flowing into net income. The company has limited control over these expenses, which could negatively impact their margins if they continue to rise.
Cash Flow and Stock-Based Compensation [7:18]
The analysis of Match Group's statement of cash flows focuses on cash from operations and capital expenditures to determine free cash flow to equity. The presenter highlights the significant impact of stock-based compensation on cash from operations, particularly for tech companies. Stock-based compensation is considered an expense and should be removed from cash from operations for a more accurate assessment of the company's available cash.
Discounted Cash Flow Model and Fair Value [9:02]
A discounted cash flow (DCF) model is used to estimate the fair value of Match Group's equity. The model incorporates revenue growth predictions, free cash flow margins, a required rate of return of 11%, and a perpetual growth rate of 2%. The analysis adjusts for net debt to arrive at a fair value of $31.90 per share. The current trading price of Match Group stock ($42.42) is above this estimated fair value.
Two Potential Scenarios for Match Group [11:46]
The analysis presents two potential scenarios for Match Group's future:
- Continued Struggles: Increasing costs, competition, and compressing profit margins make it difficult for Match Group to meet growth expectations, leading to further pain for investors.
- Successful Turnaround: Setbacks are temporary, growth rate estimations are exceeded, margins improve, and Match Group maintains its market leadership, resulting in a fair valuation.
The presenter emphasizes the importance of monitoring margins (gross profit, operating, net profit, and free cash flow) to assess the company's financial health and determine which scenario is more likely.
