In the wake of IAC’s decision to spin off its chief asset Match Group, should investors back the dating company, or is it time to call the whole thing off?
Oct. 17, 2019
The Five On Friday is our weekly newsletter covering the investing world’s top stories each week. If you want to subscribe for more great content, simply sign up here.
Digital technology holding company IAC (NASDAQ: IAC) made headlines earlier in the month when it revealed plans to spin off Match Group (NASDAQ: MTCH), its best known and most valuable asset. IAC, which owns roughly 80% of the dating giant, is simply following a well-established practice. Indeed, the holding company is noted for incubating young businesses and then launching them as separate companies. Expedia, Ticketmaster, and Interval have all followed the same path.
Despite the move falling in line with IAC’s past behavior, many journalists and investors were quick to point out the many scandals with which Match Group is plagued, suggesting the spin-off was a way for the parent company to rid itself of a headache. After all, it’s no secret that Tinder, Match Group’s star dating app, has been embroiled in a series of ugly lawsuits for months. These include accusations of sexual harassment against a former Tinder CEO, who in turn made a counterclaim against his accuser.
Match Group itself was also recently sued by the Federal Trade Commission for “fraudulent business practices.” The FTC claimed that Match deceived hundreds of thousands of users into buying subscriptions under false pretences and actively profited from the widespread use of bots and scammers on its platforms. As one FTC spokesperson put it: “Online dating services obviously shouldn’t be using romance scammers as a way to fatten their bottom line.” These are serious accusations, and it’s at least possible that they were factored into IAC’s decision to divest its stake in the company.
This should not, however, turn investors away from what has been one of the most successful medium-sized technology stocks in recent memory. So much bigger than just Tinder and its namesake app, Match Group operates a portfolio of over 45 brands in almost every country on earth, including OKCupid, Plentyoffish, Meetic, and other growing dating platforms. The company’s stock has soared more than 70% this year alone and more than 300% in the past three years. Meanwhile, Tinder is a cultural icon with few equals, having helped to normalize online dating in a way that only a ubiquitous, popular mainstream product could have done. There aren’t many companies that can claim to be at the center of a behavioral revolution, but Match Group is one of them.
For the present, there’s no reason to think that the company’s growth won’t keep an impressive pace. Millennials are increasingly eschewing the risk and messiness of nightclubs in favor of dating apps, while the generation beneath them may prove to be the first for whom meeting partners online is the norm rather than the exception. This is a new status quo which Match Group has helped to create, and one which it continues to capitalize on. In its most recent earnings report, the company reported that Tinder boasted of 5.2 million average subscribers for Q2, 1.5 million more than the previous year.
According to IAC’s CEO Joey Levin, Match Group has served its time under the conglomerate’s wing and is now ready to “begin its journey as a thriving, independent company.” These words may sound a little like a corporate version of “it’s not you, it’s me.” They might also be the truth.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Match Group. Read our full disclosure policy here.