The Coronavirus-induced lockdowns have been an attractive opportunity for online dating companies.
All kidding aside, the lockdowns seem to have done two things for online dating companies — two things that are in direct conflict with each other. Dating apps are likely seeing a surge in engagement as people stay inside, but they’re also seeing a decline in subscriptions.
“Though subscriptions are likely under pressure, dating companies have reported upticks in usage and engagement,” wrote Canaccord Genuity tech and media analyst Austin Moldow in a note. Moldow said, in a saturated field of players across the globe, only a few companies have taken swift action to capture share of users’ attention.
But before we dive into the winners and losers, let’s point out a few things.
First off, The expected fall in subscriptions is a huge near-term negative, as most dating companies derive revenue largely from subscriptions. Monetizing user engagement on the platform is tricky and hasn’t happened much yet.
Secondly, these stocks sold off harder than the broader market in February and March and they’ve rebounded with more strength as the S&P 500 has popped. This isn’t a huge surprise. Investors have looked past what will be an ugly first and second quarter, as recent signs that lockdowns will begin easing and vaccines for the virus are entering human testing stages, sending valuations toward levels that reflect an expected 2021 earnings rebound. Stocks are now trading at expensive multiples of 2020 earnings.
Well, if the expectation is that daters will resume subscribing when they know they can get out and meet, these stocks could easily be more volatile than the broader market. Match Group, for example, fell 47% from its all-time high, while the S&P 500 fell 34% from its high. Match has rebounded 72% from its bear market low on March 23, while the S&P 500 is up 24% from that date.
Thirdly, Moldow didn’t specify updated engagement or subscription expectations for the near-term.
On engagement, Moldow pointed out the companies that have enabled one-on-one videos as well as group videos. Match Group, which owns Match.com, Hinge and several other well known platforms and is the largest player with a $23 billion market cap, has enabled the feature. MagicLab, owed mostly by private equity firm Blackstone, has enticed users with one-on-one video as well. MagicLab owns Bumble.
Still, "Meet Group, which is more about 1-to-many video, is probably best positioned in the near term,” Moldow said. He said smaller players have been more innovative of late, although they’ve had trouble scaling. But it’s important for smaller players to innovate and drive engagement, as they try to win over more subscribers. Meet Group has a market cap of $438 million and has risen 28% off of its 2020 low.
Moldow’s top mentions on dating companies attracting users during the lockdown are the three companies mentioned above.
Still, the key number investors are likely to zero in on is subscription growth.
Match Group, still valued as a growth stock, saw net subscriber adds increase 14% year-over-year in 2019 and 36% in 2018, according to FactSet. Sales have increased in the mid-teens in percentage terms on a year-over-year basis. But for 2020, subscriptions are expected to fall 54%, while sales will still rise healthily as the company pulls different levers to see revenue growth through. Gently raising subscription prices is one strategy.
Match currently commands an impressive valuation at almost 10 times expected 2020 revenue, above other smaller peers recently valued at roughly 4 to 5 times revenue. That valuation may be supported, as seen by its expected sales growth in 2021 of about 26%.
Two keys for investors to watch going forward: the speed at which larger players like Match Group can meet small players on innovation and engagement (that’s a factor in subscription share) and the cadence at which states reopen economies.
For the broader online dating business, the market has clearly priced these stocks for an optimistic outcome on lockdowns, as is the case for the broader market.
For now, there’s likely no dating if there’s no going out.