INTRODUCTION:

MTCH the parent company for a large number of successful dating apps e.g. Tinder, Hinge and OkCupid, their growth has grinded to a halt recently with a very unique business model where the more successful/effective their product is the more subscribers they lose. Management has laid out several game plans such as increasing marketing spend, releasing higher priced tier e.g. HingeX and Price & Margin Optimization through removing introduction & discount pricing.

REVENUE:

The largest difficulty I faced when forecasting subscribers for MTCH is their unique business model. However, good dating apps are able to grow faster than their subscribers churn as the word of mouth advertisement and successful couples being a walking billboard for them are all a crucial part of the business model of MTCH. So, when creating a revenue model I was under the assumption that the churn isn’t to a significant amount. I believe it's much less accurate to try and forecast churn into my “older” subscribers and project from there as I’d be making far bolder assumptions than simply assuming subscribers grow at a faster pace than churn.

The direction for revenue that management is taking is “longer term…We'll essentially have fewer payers but at higher price points.” – 2022 Q4 Earnings Conference.

Factors affecting the growth rate of revenue/payers and amount of payers is “Prevalence of smartphones in the market” and “affluence of the market”. (SOURCE)

APAC Payers growth is very dependent on consumers getting smartphones or pivoting from traditional methods of dating e.g. Matchmaker or arranged marriage, which is especially prevalent in India (SOURCE). So due to the difference in consumption patterns, I’ll forecast America and Europe with similar trends. Whereas APAC and others follow a separate trend.
But for all regions I'll assume that they follow historic trends of either meager increase or decline for the next 2 years as macro trends continue for the next 2 years, before improving for the better as macro conditions improve.

For America and Europe,

To forecast Y/Y payers,

As the macro environment changes for the better, America and Europe Y/Y payers will get a slight increase in growth at similar levels as 2021 where economic conditions were the most favorable for the next 3 years before tapering off for the rest of my forecast.

To forecast Y/Y revenue/payers,

I assume that revenue/payers will get a bump as MTCH better optimize their prices either through a higher paid tier or better pricing/less discounts. Which is a direction management wants to take as stated on their Q4 2022 Earnings Conference.

For APAC and Others,

I believe the explosive growth historically will not sustain as this explosive growth is a low hanging fruit, mainly people who are curious and the most willing to try dating apps. It’ll take about 6 years for MTCH’s products to catch on as consumers will require a cultural shift and overcome the difficulties as stated above facing this region. So from then on, MTCH could start charging a higher price.

For Indirect Revenue, opting for less granularity I forecasted it as a % of subscription revenue as the success of indirect revenue comes from how well subscription does.

REVENUE MODEL: [INSERT]

COST:

COGS comes from e.g. Customer care, hosting fees & in-app purchase fees etc. Given that MTCH's cash cows e.g. tinder and hinge are mainly on the app store, this means that the largest COGS should be in app processing fees. Opting for less granularity, I’ll assume that COGS will tend towards 30% of Revenue as the app store collects 30% from the sale of in app purchases.

Marketing,

Management has stated their intent to increase marketing spend, I’ll assume that they have elevated marketing spend for the next 2 years. Remaining at historic levels for the next 5 years before tapering down. Management does not need to go overboard with marketing spend given that the business model of dating apps is that they spread mainly through word of mouth.

G&A,

Management has stated that they have overhired and would like to optimize margins. I'd assume G&A spend remains at a constant nominal amount for the next 2 years before the economy picks up again and the demand for dating apps rises which allows MTCH to hire more people for the next 3 years before tapering down.

R&D,

I’ll assume that R&D expenditure follows historic trends to avoid being overly granular.

COST MODEL: [INSERT]

CAPEX and D&A:

I’ll assume that the company gets more capital efficient for the next 2 years, reinvesting below or near historic amounts. Before expanding its Earnings Reinvested for the next 3 years to accommodate the higher growth and tapering into capital neutral.

ASSUMPTIONS:

1. WACC remains constant at 11.57%, TGR is at 2.0%

2. Change in NWC follows historic trends as shown in this schedule [INSERT]

3. Churn is not a significant factor that affects growth rate.

WACC:

COST OF EQUITY

RFR (1M Avg) = 3.82%

Market Beta (SOURCE) = 1.59

Earnings Yield (1M Avg) = 3.98%

S&P 500 (1M Avg) = $4467.72

Growth Forecast (SOURCE)

4050 = (4700 x 3.98%) / (1+R) + (4700 x (1+7%)) x 3.98% / (1+R)^2 + (5029 x 3.98%) x (1 + 2%) / (R – 2%) / (1+R)^3

R = 9.12%

ERP = 5.30%

COE = 12.25%

COST OF DEBT

BB bond yield (1M Avg) = 7%

Marginal Tax Rate = 21%

AT-COD = 5.53%

WEIGHTAGE

I’ll assume that FY22 interest expense carries until the maturity of the relevant debt and remove the consideration of that debt from interest expense.

FY22 interest expense = 146M

MV Long Term Debt = 1313.32M

Lease Liability = 111.91M

Total Liability = 1425.23M

Avg Price (1M Avg) = $45.65

Shares O/S = 279.32M

Market Value of Equity = 12750.96M

%Equity = 89.9%

%Liability = 10.1%

WACC = 11.57%

SANITY CHECK:

Looking at %Earnings Reinvested, Growth Rate and ROIC. I forecasted even below historic averages to be as conservative as possible

[INSERT]

CONCLUSION:

Ultimately at base case I value MTCH at $56.94. I don’t necessarily agree with management’s plans moving forward on how they plan on growing through higher marketing spend. A good dating app should mainly grow through word of mouth as it shows that churned users are satisfied with the services provided and are living proof of the effectiveness of the app. I do see higher priced tier being a viable solution especially with users who are impatient or need a bump, but the removal of introductory pricing may cause an issue as a dating app may not be worth spending a lot of money on till users can see its worth proven either through word of mouth or trying their services at a low initial commitment.

Worst Case: [INSERT]

Base Case: [INSERT]
Best Case: [INSERT]