Home dating industry Is Match getting out of order with its latest acquisition?

Is Match getting out of order with its latest acquisition?



Sometimes too much of a good thing is too much, and Match group (NASDAQ: MTCH) maybe come up against this reality. The owner of online dating apps seems to love buying competing services, collecting rivals like kids collecting baseball cards. At some point, that’s enough.

Addicted to love

The latest service to join the Lonely Hearts Club of Match is Hinge, a site that once billed itself as “anti-Tinder” because it focuses on relationships rather than connections. (Tinder is Match’s flagship service.) The purchase leaves Bumble as the only major non-Match dating app, and both are currently suing everyone another after having previously been in a relationship where Match attempted to acquire her for $ 450 million.

Match Group has an unhealthy addiction to buying from competing dating sites. Image source: Getty Images.

Match already owns Tinder, OkCupid, PlentyOfFish and a slew of other sites – not to mention its eponymous site – which total 45 in all. Adding another site to the mix does nothing despite management’s claim that Hinge is “very relevant, especially among urban and educated millennial women looking for connections.”

According to the US Census Bureau, there were 110.6 million people aged 18 and over who were single in 2016, or 45% of all Americans over 17. Surveys show that 21% of the population has tried a dating app, and up to 30% of millennials have tried one. Match Group said it had 7.4 million subscribers in the last quarter.

Still, when it comes to dating apps, more isn’t necessarily better, as too many options mean you end up making no selection, or what’s called the “paradox of choice.” Less choice can actually be better.

And Match could have modified any of its own sites to encourage long-term relationships, not connections, and have a competing brand, which, with Match’s greater financial resources, could have made it a viable rival for Hinge.

For example, earlier this year Tinder activated a Bumble-like feature that allows women to initiate any contact with prospects. On Bumble, this is the default setting; on Tinder, it’s a registration feature. CEO Mandy Ginsberg said Match has the ability to deploy this female-friendly feature across all of its departments.

It also drives a location-based feature called Places that lets you meet people who frequent the same places as you, and Feed, a real-time list of recent activity so you have something to say with matches. potential and another way to assess them. Adding better functionality to an existing service, especially a service that has reached critical mass like Tinder, would seem like a better use of resources than just buying another app.

Light the flame

Match is obviously the leader in online dating, and even Facebook hasn’t announced it. introduction of a dating app could slow it down more than temporarily. It has the largest and most popular service on Tinder with 3.5 million paid subscribers. He added 1.6 million in the past year. And while the ladder can help thwart a challenge from an upstart like Facebook or fend off Bumble, buying them all doesn’t necessarily add much.

Match has acquired dozens of services over the past nine years, and over the past three years has spent $ 610 million to acquire different brands, roughly the equivalent of its cumulative operating profits for the same period. While none of the deals appeared to have gone on the wrong date (he didn’t have to depreciate any of the acquisitions or take non-cash fees), the increase in the cost of Match’s revenue exceeded its expectations. revenue increases due to acquisitions. like PlentyOfFish and Pairs.

Additionally, Match’s second-tier services strive to lower its Average Revenue Per User (ARPU) because they can’t charge the same bonuses as Tinder. Last year, North America’s revenue, which accounts for 56% of Match’s total, grew 9% thanks to an increase in the number of people signing up for Tinder. Yet North America’s ARPU was flat.

It is the law of diminishing returns in action, and the more Match invests in expanding the universe of services it offers, the lower the return it will derive.

Buy what he already owns

The deal for Hinge gives Match a 51% stake with the right to purchase the remainder of Hinge over the next year. He first invested in the company last year and claims that since then Hinge’s user base has grown by over 400%.

While Hinge doesn’t disclose how many users it has, regardless of the number, there’s no question that people using dating apps have accounts on multiple sites, so Match pays for the members it does. probably already has. Total Match subscribers reached 7.43 million in the first quarter, up 26% year-over-year, and some of them are also expected to be Hinge members.

Tinder is Match’s growth engine, and it’s primarily responsible for the growth Match is experiencing, and is responsible for approximately 30% of Match’s $ 1.3 billion annual revenue. Match revenue jumped 36% in the first quarter, driven by an impressive 26% gain in new subscribers over the period last year, as well as an 8% increase in ARPU , although this is mainly due to international growth.

Making another acquisition could put another dating app into Match’s diverse collection, but it does nothing to bolster what makes it money, namely Tinder.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.