It's never been easier to find a date. Smartphone apps such as Tinder have made it simpler than ever before. And if the numbers are anything to go by, its user base is skyrocketing. That said, it might be wise to stick to the sidelines when the company starts trading.
Riding high on this digital dating revolution are the makers of Tinder -- the Match Group. The company offers not just people matching services such as Match.com, OkCupid and Tinder but also educational services such as The Princeton Review, and Tutor.com. Now Match Group has filed for an initial public offering. Should you bite?
To be sure, the Match Group is only getting bigger as time goes by. Wholly owned by InterActive Corp. (IACI) , Match boasts 59 million monthly active users and 4.7 million paid users, across its portfolio of 45 services.
Hoping to capitalize on the burgeoning dating market and education sector, Match Group has filed an S-1, to go public and raise $536.7 million.
Match's pool of potential customers is set to explode further. Currently at 511 million people, the target market for dating services is expected to expand over 30% by 2019 to 672 million.
Match has consistently grown revenues, from $713 million in 2012, to $803 million in 2013 and $888 million in 2014. However, since it's still not crossed the $1 billion mark, it fits the bill for "emerging growth companies," as defined in the Jumpstart Our Business Startups (JOBS) Act of 2012, which raises a few interesting scenarios.
Unlike many public companies, Match has reduced reporting requirements, meaning it could provide under five years of selected financial information in its IPO registration statement. Also, it's not obligated to make disclosures regarding executive compensation and needn't provide auditor attestation on the control of its financial reporting.
And despite the earnings upswing of $148 million in 2014, $126 million in 2013 and $90.3 million in 2012, Match appears to be in no mood to share profits with its shareholders. The company will direct all its earnings to fund growth plans and does not intend to pay dividends "in the foreseeable future."
What's more, Match also will shell out a portion of the IPO proceeds to clear its debt with parent InterActive Corp.
According to its prospectus, InterActive Corp. will own every outstanding share of class B common stock. As these shares have superior voting power, pivotal company decisions pertaining to mergers and acquisitions, dividend payments, and board member elections will be contingent on InterActive's vision for the road ahead. Other challenges loom:
Match is only one among a growing list of companies that are highly vulnerable to fast-changing technology and cyber attacks.
Apps and online services of this nature generally carry the challenge of risking user confidentiality and compromising their information, as witnessed in the Ashley Madison case. However, Match has been explicit about its vulnerability to cyber-attacks. Despite investments in infrastructure to tackle the menace, it's been candid about the threats from attacks on third parties associated with the app.
Match has valued its equity at $3.6 billion. However, it's rather tight-lipped about Tinder's contribution to the pie. According to the IPO filing, Tinder is projected to record $1 billion in revenue and a net income of $177 million for 2015, at a valuation of $1.3 billion. However, with 10% of Tinder going for $500 million in 2014, the numbers add up to a valuation of $5 billion.
Will we get a clearer picture closer to the IPO?
Online dating companies haven't enjoyed a dream-run in the market. Behavior-based matchmaking app Zoosk rescinded its IPO plans in May, blaming unfavorable market conditions. Badoo, the largest dating site in the world, has been contemplating an IPO for over five years now but plans are yet to see light of day. From the listed players, Chinese dating app Momo Inc., Date and Christian Mingle owner Spark Networks, and London-listed Cupid have seen their stock prices take a heavy drubbing.MOMO data by YCharts
If you're still sold on Match Group's story, there are 38.3 million shares on offer in the price band of $12-to-$14. We would, however, recommend you hang onto your dollars for now. With its shaky revenue streams and possibly ephemeral user base, Match needs to re-think its value proposition and deliver a more stable and sturdy foundation for investors.
But beware: In this choppy market, there's a plethora of overly hyped stocks that you should definitely shun. For a complete list of these portfolio disasters waiting to happen, click here.