Match Earnings: User Monetization Is the Bright Spot and Relationship With User Growth to Improve

While Match Group MTCH posted its second consecutive year-over-year quarterly revenue decline, our overall takeaway from the first quarter results was positive. We think Tinder’s higher prices and further user adoption of Hinge with minimal cannibalization of Tinder will return growth to the top line, which, combined with continuing cost controls and lower user acquisition costs due to the firm’s network effect, will expand margins this year and in 2024. We were also pleased with the firm’s longer-term capital allocation strategy to return at least 50% of free cash flow to shareholders, more likely in the form of share buybacks. We are maintaining our $70 fair value estimate of narrow-moat Match and view the stock as attractive.

Total revenue came in at $787.1 million, down 1.4%, mainly due to currency headwinds (up 3% on a constant currency basis). Declines in Match Group Asia (down 13%) and evergreen & emerging (down 8%) were offset partially by flat Tinder revenue and 27% growth in Hinge, which now represents 11% of total revenue (up from last year’s 8%).

Match’s network effect held steady with higher user monetization (up 1.6%) more than offsetting a decline in users as consumers have become more price sensitive given the economic uncertainty. Tinder’s higher prices also contributed to user decline, but mainly the users that generated a la carte revenue. Revenue growth from subscriber users continued, driven by both higher prices and user growth, displaying the network effect moat source. The firm will maintain higher prices as it prioritizes top-line growth. We do not expect such a strategy to significantly affect overall user growth going forward, assuming that consumer discretionary spending is not affected much within the current macro environment.