Match (MTCH) – Earnings Review – February 3, 2024
“As a company, we completed a great deal of foundational work in 2023 and now, with the right team and strategy set in place, we’re confident in our ability to accelerate momentum in the coming quarters.” – Shareholder Letter
Demand
Match beat revenue estimates by 0.6% & beat its guidance by 0.7%. It met Tinder revenue growth guidance. Note that negative payer growth is being driven by large price hikes that finished rolling out out during Q1 2024. The hikes are still in the Y/Y comp. This will lead to negative payer growth through Q2 and an expected bottoming in Q3 before growth is set to resume in Q4. That’s paramount for this investment to work. It’s the only way profit can compound via revenue improvement and not solely cost cuts. Cost cuts are a temporary Band-Aid in a quest to compound profits at a compelling clip for several years.
Source: Brad Freeman – SEC Filings, Company Presentations, and Company Press Releases
Margins
EBITDA came in 17% ahead of estimates and 17.7% ahead of guidance. GAAP EBIT was a 17.6% beat. It also crushed $0.49 GAAP EPS estimates by $0.32 or 65%. This was its 3rd straight quarter of record-setting EBITDA margins.
*Q4-22 & Q3-23 GAAP margins hit by Hyperconnect intangible asset impairment in Q4-22*
*-26.8% operating cash flow margin for Q2-2022 is related to a legal settlement charge*
Source: Brad Freeman – SEC Filings, Company Presentations, and Company Press Releases
Balance Sheet
- $870 million in cash & equivalents; $3.84 billion in debt.
- Basic share count fell 3.2% Y/Y; diluted share count fell 0.6% Y/Y.
Match added a new $1 billion buyback and now has $1.57 billion in available buyback capacity. That represents 15.1% of its total market cap. It plans to return more than 50% of its expected $1.1 billion in 2024 FCF to shareholders through buybacks. Its net leverage ratio is comfortably below its 3.0x target and it has no plans to buy any companies. More buybacks.
Guidance
Annual EBITDA and revenue guidance were in line with expectations. Better yet, its EBITDA guidance was an “at least” guide, meaning it met this expectation from a worst case perspective. Match has been struggling with meeting sell-side expectations when it comes to forward guidance. This was a small, yet material step in reversing that trend. Now it needs to deliver on these promises without negative revisions throughout the year.
Other annual guidance items:
- 7% Y/Y Tinder growth.
- Hinge to grow by 36% Y/Y.
- $1.1 billion in 2024 free cash flow beat expectations by 14.8%.
Next quarter guidance was 1.4% light on revenue and 9.6% light on EBITDA. This doesn’t bother me as long as the full year guide is met. It also told us to expect a material rise in Y/Y marketing spend at Tinder and Hinge.
Based on guidance and analyst estimates, it trades for 9x 2024 free cash flow, 10x EBITDA and 12x price to earnings (P/E). As always, I use market cap for firm free cash flow and earnings while using enterprise value for EBITDA.
- Enterprise value (EV) is market cap + debt – cash. If a profit metric is pre-interest expense, EV is the correct numerator to use.
Call & Release Highlights
Demand Metrics:
- Tinder revenue rose 11% Y/Y.
- Hinge revenue rose 50% Y/Y.
- Match Group Asia revenue fell 1% Y/Y, but rose 6% Y/Y foreign exchange (FX) neutral. That’s its best result in nearly 2 years.
- Evergreen and emerging brand revenue fell 4% Y/Y.
Costs:
- Cost of revenue fell 12% Y/Y as it recouped the $40 million placed in an escrow fund from the Google litigation settlement.
- Sales and marketing rose by roughly 200 bps as a % of revenue Y/Y to roughly 18%.
- General and administrative fell 200 bps as a % of revenue Y/Y to roughly 12%.
- R&D rose 100 bps as a % of revenue Y/Y to roughly 11%.
Tinder:
Tinder finally announced a new CEO in Faye Losotaluno. She had been Tinder’s COO. Not sure why an internal promotion took so long here. Her main objective will be to drive better innovation and to evolve the product to better satisfy women and the next generation of daters. This is still the first app used by most new entrants and Tinder needs to do a better job serving those consumers.
Tinder enjoyed “ongoing momentum” in weekly subscribers and pricing optimizations. This helped it deliver its 2nd straight quarter of double-digit Y/Y growth. It now thinks the impact of 2023 price hikes are in the rear-view and is “confident the hikes created a healthier payer base.” Still, top-of-funnel weakness continues to be the key issue here and the firm cannot blame price hikes for it as comps normalize in Q3 2024. That’s why payer growth is expected to turn positive then. For this current quarter, daily new users fell by a mid-single-digit % Y/Y. Not at all ideal.
From a product perspective, Tinder is adding new discovery and profile customization tools to “better reflect the wants of newer daters.” This is the first step in Tinder’s product evolution. Other steps for 2024 will include testing new discovery tools and revamping the explore page to allow users to find matches outside of swiping.
Tinder will roll-out weekly subscriptions to the markets where it hasn’t yet done so this year. That should lead to a nice payer tailwind next quarter, but elevated churn from weekly vs. monthly subscribers will lead to that boost being somewhat short-lived – more like a sugar high than a permanent growth aid. It will also optimize new à la carte items for variables like duration, pricing and geographic localization.
Again, all of this work should lead to Q/Q Tinder Payer growth turning positive in Q3 with Y/Y growth turning positive in Q4. It should also mean daily new user trends resume growth in the back half of 2024. These are prerequisites for me to stay invested.
Hinge:
Hinge continues to be the shining star of this company. It’s “well on its way to being a billion dollar business” as download growth remains at 40% Y/Y and payer growth is over 30% Y/Y. Last quarter, it was #1 in the UK, Australia, Ireland and Sweden. In January, it maintained those positions while moving from #3 to #1 in Canada and to #1 in all of the Nordic countries. It also moved from #5 to #3 in France. To maintain the momentum, Hinge will meaningfully invest in global marketing in 2024 and will “address matching efficacy” for those receiving too few and too many matches. Notably, Hinge saw new download weakness in the month of December. Encouragingly, that sharply bounced back in January, with the quarter off to a “great start” for the important app.
Match Group Asia:
The TV marketing launch in Japan is showing signs of renewing user growth and “turning the tide.” It’s been a massive struggle in that country since 2020. Continued marketing and other initiatives like local government partnerships will remain key focuses in 2024. The Korean Azar App, which is known for 1-on-1 video chatting) will expand to the U.S. and Europe in 2024. It delivered another quarter of solidly double-digit Y/Y growth.
Emerging and Evergreen Brands:
Match continues to progress towards consolidating the tech stack for all brands under this category. Not much detail was given on the new Archer app aside from calling momentum “strong” as it rolls out across the U.S. Emerging brands in this bucket grew by 30% Y/Y while Evergreen fell by 10% Y/Y due to intentional marketing cuts and a shift in focus to operational efficiency.
AI:
Like for everyone else in 2024, AI will be an area where Match looks to drive rapid innovation. 50% of all online dates are sourced through Match. It has far more data than any other competitor and needs to do a better job capitalizing on that edge. That’s the plan. There are a few areas where this will be most noticeable. First is profile creation with AI tools like automated photo selectors to make the tedious process easier and less intimidating. It will also create new programs to drive better, more relevant matching and ChatGPT-like assistance on how to craft a conversation. These new products will debut throughout the year.
Take
This quarter did just enough to keep me around for another 3 months (and hopefully a lot longer). It wasn’t amazing, but importantly, it avoided an annual guide that would have driven more downward estimate revisions. It also avoided executional blunders like the marketing campaign pause that unnecessarily weighed on results last quarter. This is still the dominant online dating player and online dating is still a secular growth story. So what do I want to see in 2024? I want payer trends to recover like they’ve forecasted. I want guidance to remain at least where it is right now and I want Match to keep shrinking the share count like they plan to do. I’m also eager to see what Elliott Management (activist investor) will want from the current team. As I’ve said in the past, this company is perfect for activist intervention. It has the brands, balance sheet and market share to win for years to come. It needs to execute better. This quarter marked yet another beginning of a better execution trend. I don’t want to see any more premature ends to that needed trend. I’m swiping right on this quarter, but still think an exit is somewhat likely this year. Turnarounds are never easy.
