The Bear Market Is Providing a Once-in-a-Generation Buying Opportunity for This Internet Stock @themotleyfool #stocks $MTCH
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Shares of online dating platform Match Group are down 69% this year.
2023 should be better if product development headwinds subside.
The stock is cheap if you believe the company can recapture growth.
Motley Fool Issues Rare “All In” Buy Alert
NASDAQ: MTCH Match Group
Market Cap $12B
Today's Change
(0.97%) $0.40
Current Price $41.49
Price as of December 30, 2022, 4:00 p.m. ET
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The S&P 500 is down approximately 20% in 2022. This is one of worst years for stocks on record and the biggest annual drawdown for the index since the great financial crisis in 2008. But looking under the hood, things have been much worse for certain 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 is down a massive 69% this year. The owner of Tinder, Hinge, and other online dating properties went through an executive transition and is facing major foreign currency headwinds at the moment, which is driving investors away from the stock.
Investors gave up on Match Group in 2022. Here's why this selling is misguided and why you should consider adding the online dating company to your portfolio.
To give context, investors need to understand why Match Group stock did so poorly in 2022. First, it went through a CEO transition when Shar Dubey retired earlier this year. The board of directors brought in Bernard Kim -- a previous executive at mobile gaming company Zynga -- as the new leader of the business. After coming on board, Kim took a good look at the operations at Match Group's various dating properties and did not like how things were run.
He subsequently fired the Tinder leadership team due to poor product and monetization developments and brought in a new group to run the division. These failings are going to hurt Tinder's revenue growth over the next few quarters. Since Tinder generates the majority of Match Group's revenue, this will have a large impact on the overall top-line growth for the company as well.
On top of failures at Tinder, Match Group is facing major foreign exchange headwinds due to the rising value of the U.S. dollar. Since Match Group is a global business but reports its financials in U.S. dollars, changes in exchange rates can positively or negatively affect its revenue growth. In 2022, revenue growth is facing close to a double-digit foreign exchange headwind.
Add up both of these factors, and Match Group now expects Tinder's direct revenue to be flat year over year in the fourth quarter of 2022, which is a huge slowdown from 23% growth last year. Wall Street hates when revenue growth unexpectedly decelerates, so it is no surprise that Match Group stock tanked in 2022.
You can't blame short-term traders for selling Match Group through the end of 2022. The company is about to report poor results that may not get better for a few quarters. But if you are a long-term investor with a time horizon of several years, Match Group's business looks healthy right now.
First, foreign exchange headwinds are not likely to be nearly as impactful over the next few years. In Q3, Tinder's revenue grew 16% year over year on a currency-neutral basis but 6% year over year in U.S. dollar terms. This will not likely be repeated in 2023 and should help the company accelerate its revenue growth throughout 2023.
Second, there is still a long-term opportunity for online dating to grow in popularity around the globe. Tinder, if it can fix its product issues with this new team in place, is poised to benefit from this growth as it is still the leading dating app in the majority of markets.
Third, Match Group has a promising new application in Hinge that can drive revenue growth for many years. The app is for more relationship-focused daters and has grown in popularity in English-speaking markets. In 2022, management expects the app to generate around $300 million in revenue.
Over the next few years, Hinge is going to expand into more international markets and hone in on monetization, which should drive consistent top-line growth. Combine this with the steady growth at Tinder, and Match Group looks poised to grow revenue at a double-digit rate for the foreseeable future.
Match Group shares are cheap right now, especially if you consider its long-term growth opportunity. At a market capitalization of $11.6 billion and $641 million in operating income (I'm not using net income because of 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 Income (TTM) data by YCharts
For a company facing major short-term headwinds and with 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 growth of the online dating market, the time is now to plug your nose, take a plunge, and buy some Match Group shares.
Brett Schafer has positions in Match Group. The Motley Fool has positions in and recommends Match Group. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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