Swiping Right on the Online Dating Industry

by Overheard Wall Street May 1, 2023

Intro
History
Universe
Match Group
Conclusion/Recommendation

Intro

Dating apps have taken the world by storm, providing an easy and accessible way for younger Americans to connect with others.

There are almost 50 million online dating users in the United States. But that number could increase significantly as younger generations enter the dating scene.

Even just ten years ago, meeting people online was a little taboo. But the rise of smartphone apps made online dating more mainstream than ever. And during the pandemic, more Americans were willing to give the apps a chance when bars and clubs closed.

The hot apps come and go, but one company, the Match Group, has emerged as a dominant force. With ownership of popular platforms like Tinder, Match, Hinge, and OkCupid, the Match Group commands a staggering 70% of the industry's revenue.

History

While online dating has been around for a minute, it wasn’t until the rise of apps like Tinder that the industry gained widespread popularity.

Match.com, which launched in 1995, was one of the first online dating websites and quickly became the leader in the industry. It was followed by other popular dating websites such as eHarmony and OkCupid.

The rise of smartphones and mobile apps revolutionized the dating game, and Tinder took the world by storm with its irresistible "swipe right" feature. With just a flick of a finger, users could sort through a sea of potential matches, making it an instant hit with younger generations.

In response to Tinder's success, other dating apps such as Bumble and Hinge were launched. These apps took different approaches to online dating, with Bumble allowing women to make the first move and Hinge focusing on connecting people based on shared interests and friends.

Universe

The dating game has become a fierce battlefield, with apps fighting tooth and nail to capture users attention. In this digital love hunt, companies are pouring in more resources with flashy marketing and compelling features.

Paid subscriptions now offer an arsenal of tools for users to maximize their chances of finding that special someone, from peeking at who's been eyeing their profile to shooting a love arrow straight into someone's DMs.

Here are some of the biggest players in the space:

Match Group ($MTCH)

Tinder - The most popular dating app by downloads, Tinder has revolutionized the way people date. It allows users to swipe right to like or left to pass on potential matches. Users can also create a profile with their photos and a bio.
- Match Group acquired Tinder in 2017.
- Tinder had 10.8 million subscribers in Q4 2022, the most out of any dating app.
Hinge
- Hinge connects users with people they have mutual friends with on Facebook. It also requires users to create a detailed profile with prompts and questions to spark conversations.
- Match Group acquired Hinge in 2018.
- Hinge has a little over 1 million subscribers.
Match.com
- One of the oldest dating sites, Match.com has a large user base and offers various features like sending messages, liking profiles, and filtering matches based on preferences.
- Match.com isn’t as widely used as the Match Group’s other platforms, and is kept as ‘legacy business’.
OkCupid
- OkCupid uses a complex algorithm to match users based on their answers to a series of questions. It also allows users to browse profiles and send messages.
- Match Group acquired OkCupid in 2011.

Bumble ($BMBL)

Similar to Tinder, Bumble also has a swiping feature. However, only women can initiate conversation. It also has a BFF feature that helps users find friends.
Bumble has 45 million active users, including over 1 million paid subscribers.

Grindr ($GRND)

Grindr is a dating app catering to gay men. The company went public via a SPAC in November 2022.
Grindr has 11 million active users.

Dating apps have built a sizeable user base, with multiple different streams of revenue. Dating apps rely on online advertisements, but they've also built premium subscriptions as a defensive moat.

Key industry trends and catalysts to look out for include global expansion (Asia is especially an enticing market). Apps could also consolidate even further, which made Match Group such a powerful force.

Here are some key factors to consider when deciding whether or not to invest in the industry.

Industry Bulls

Growing Demand: As the world continues to embrace digital transformation, online dating has become more popular, with more people seeking convenient and efficient ways to find love.
Recurring Revenue: Dating apps generate recurring revenue through subscription fees and in-app purchases, which provide a predictable revenue stream for investors.
Diversified Revenue Streams: Dating apps generate revenue from multiple sources, including subscriptions, in-app purchases, and advertising, reducing the risk of relying on a single revenue source.
Low-Cost Marketing: With the help of social media platforms, dating apps can reach a large audience at a relatively low cost, making them a cost-effective marketing strategy.
Monetization of Data: Dating apps collect vast amounts of user data that can be monetized through advertising and targeted marketing, increasing revenue potential.
High Profit Margin: Dating apps typically have a high profit margin, given their low overhead costs and high revenue per user, making them an attractive investment opportunity.

Industry Bears

Limited market growth: The market for dating apps is already quite saturated, leaving little room for significant market growth.
Dependency on user acquisition: Dating apps heavily rely on user acquisition, which can be costly and often requires heavy marketing efforts.
Shifting user preferences: User preferences can change rapidly, which can affect the popularity of a dating app and its ability to retain its user base.
Competition: The online dating industry is highly competitive, with new apps constantly entering the market and existing ones trying to maintain their market share.
Legal issues: The dating industry is subject to various legal and regulatory challenges, such as privacy concerns, fraud, and discrimination issues.
Dependence on advertisement: Dating apps rely heavily on the advertisement to generate revenue, which can be affected by changes in the market or user behavior.
Economic downturn: Economic downturns can impact the willingness of users to spend money on dating apps, potentially reducing the revenue generated by these companies.
Vulnerability to security breaches: Dating apps collect sensitive information from users, making them vulnerable to security breaches that can damage their reputation and cause financial harm.

Match Group

The Match Group is an American-based technology company that owns and operates several dating sites and apps. The company was founded in 1995 by Gary Kremen, but it was later sold to IAC/InterActiveCorp in 1999.

In 2002, Match.com, one of the most popular dating websites, launched its first mobile application, and in 2004, the company acquired rival dating site, uDate.com. In 2009, Match.com acquired People Media, which specialized in niche dating websites.

In 2012, Match.com’s parent company, IAC, went public, and the Match Group became a publicly traded company. Over the next several years, the Match Group continued to acquire dating sites and apps, including OkCupid, Tinder, and Hinge.

Tinder, a mobile dating app, was acquired by the Match Group in 2014, and it quickly became one of the most popular dating apps in the world. In 2017, the company launched an IPO, which valued the Match Group at over $3 billion.

Today, the Match Group is one of the largest online dating companies in the world, with more than 45 brands under its umbrella. The company operates in more than 190 countries and has over 9 million paid subscribers.

The Match Group generates revenue primarily through paid subscriptions and in-app purchases. Users can create a profile and browse for free, but they have to pay a fee to access premium features like messaging and seeing who has viewed their profile. The Match Group also offers paid features like Boost, which allows users to increase their profile visibility to potential matches for a limited time.

Additionally, the Match Group earns revenue through advertising. They offer paid advertising opportunities for businesses to promote their products or services to their user base.

Conclusion/Recommendation

Match Group looks the pick of the lot in the dating arena. Despite its stock cratering 75% from its 2021 highs, the company boasts impressive forward 3-year earnings and revenue growth rates of 22% and 13% respectively.

The company has good cash flow generation and the stability to weather an economic downturn, given the uncorrelation of dating market with the economy.

Match is in the best position to expand into the underdeveloped Asia market. Last week (February 23rd), the company announced it is in strategic talks to acquire one of India’s largest dating apps.

Online dating is here to stay. The Match Group has developed into an online dating conglomerate of sorts, providing exposure to different generations and types of platforms (apps, websites, etc). The company controls over 60% of the online dating industry's revenue and has strong potential for scalability, making it a good choice for any investors who want exposure to the industry.