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Match Group Inc Coverage Initiated With ‘Buy’ Rating

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After surging at its initial public offering last week, Match Group has tumbled, extending the troublesome recent trend of tech IPOs. Today Match shares slumped by as much as 4.21% to $14.56 per share in afternoon trading. However, they remained above the $12 per share IPO price.

Analysts from various firms are initiating coverage of the stock now that trading on it has started.

Match Group sees opportunities in Tinder

Axiom Senior Analyst Victor Anthony has kicked off his coverage of Match Group with a Buy rating and $18 per share price target. His target represents upside of approximately 20% from the current share price. He calls Match “the undisputed leader in the online dating space,” as it currently has 4.7 million paid subscribers and rakes in about 25% of the revenues in the online dating industry. Including subscribers with free accounts, Match has 59 million monthly active users. The Axiom analyst estimates the total addressable market at 511 million paid users.

Match also owns Tinder, which is the fastest growing dating app and Anthony believes holds “meaningful monetization potential,” possibly driving as much as $95 million to $150 million in EBITDA annually. He bases that estimate on the number of subscribers, the size of the ad load and margin estimates.

A multi-brand approach

He thinks the company’s position in the online dating industry is “defensible” and can benefit from current drivers of secular growth in the industry, its multi-brand approach to online dating and pricing power with its bigger brands.  In fact, the analyst sees the opportunities for ad revenues across Match Group’s multiple brands as “meaningful” and potentially able to generate between $55 million and all the way up to $230 million eventually in revenues with high margins.

Currently Match owns more than 45 different brands, including OkCupid, PlentyOfFish, Twoo, OurTime, and others in addition to Match.com and Tinder. Data from App Annie indicated recently that Match owned four of the top five revenue grossing dating apps across Google Play and Apple’s App Store in the U.S. and three of the top five globally. Further, Tinder was the most downloaded mobile app in North America, Anthony reported.

In all, Match Group offers dating products in 38 different languages across nearly 200 countries.

Match’s customer acquisition costs on the decline

He also noted that Match Group is seeing its customer acquisition costs decline and is generating strong cash flow. He estimates that the company’s EBITDA margin will expand 600 basis points from this year’s 32.7% to 38.9% estimate in 2017. Anthony added that 60% of Match’s EBITDA converts into free cash flow and that he thinks the company’s free cash flow margin will rise from this year’s margin in the mid-teams to the mid-20% range in 2017 and 2018.

The analyst also said Match’s monthly active users had a compound annual growth rate of 63% between 2011 and 2015, while its paid user number recorded a compound annual growth rate of 23% during the same time frame.

He noted that as with any company, Match Group does face some risks, but he thinks these risks are “manageable.” He sees competition and cannibalization of Tinder as being the main risks the company faces.

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