The Covid-19 pandemic led to a surge in people looking for love on dating platforms such as Match Group's Tinder app.
Beata Zawrzel | NurPhoto | Getty Images
Company: Match Group (MTCH)
Business: Match group offers dating products worldwide. Their portfolio of brands includes Tinder, Match, The League, Azar, Meetic, OkCupid, Hinge, Pairs, Plenty Of Fish and Hakuna as well as various other brands. Their services are available to users around the world in over 40 languages.
Market value: $10.02 billion ($36.88 per share)
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Match Group's performance last year
Activist: Elliott Management
Percentage ownership: ~9.5%
Average cost: n/a
Comment from activists: Elliott is a very successful and smart activist investor. The company's team includes analysts from leading technology private equity firms, engineers and operating partners – former technology CEOs and COOs. When evaluating an investment, the Company also engages specialized and general management consultants, experienced cost analysts and industry specialists. The firm often tracks companies for many years before investing and has an extensive roster of impressive board candidates. Elliott has historically focused on strategic activism in the technology sector and has been very successful with this strategy. However, its activist group has grown and developed in recent years, and the company has done much more longer-term activism and created board-level value across a much wider range of companies.
What happens
Behind the scenes
Match Group is by far the world's leading provider of online dating apps, with over 45 brands including Tinder and Hinge. Tinder is the most downloaded dating app in the world, accounting for more than half of the company's revenue at around $1.9 billion. The company has a profit margin before interest, taxes, depreciation and amortization of over 50%, but has weak growth. Hinge accounts for $400 million of the company's revenue but is growing at over 100% annually. This is a market-leading company with an amazing financial profile – growing revenue, high EBITDA margins and low assets, generating revenue through a subscription model. However, the performance of its share price compared to peers and the broader market has been dismal, with the stock having fallen over 60% since the company's separation from IAC in July 2020.
There's an opportunity here to reignite growth – it's gone from a 35% compound annual growth rate to high single digits – and achieve margins well over 40% from its current level of 36%. The main problem here is control, particularly in the form of management turnover. Holding company Match Group has had four CEOs in six years. Tinder, the largest company, has had six CEOs in eight years. Since the average tenure of a Tinder CEO is one year, it is nearly impossible to implement a long-term strategic plan. In addition, the company has also made some bad strategic deals, including its $1.73 billion acquisition of market-topper Hyperconnect in June 2021, which has already incurred $270 million in impairment charges . As a result, investors have many doubts about the company, including the following: Is this the right leadership team? Is Match a growth or value company? Is Tinder a melting ice cube?
The first thing that needs to be done is to find the right CEO at Tinder who will set a crucial long-term vision for the company. Shortly after Elliott's position was announced, the company named Faye Iosotaluno, who has been Tinder's chief operating officer since August 2022, as Tinder's CEO, ending a nearly two-year vacancy in which Match's CEO also served as Tinder's CEO. Once the right leader is at the helm of Tinder, restoring margin should require no more than basic blocking and attacking, especially since the company has a very stable and competent CFO in Gary Swidler, who has been there for 8 1/2 years. Next, the company can regain its strong growth by investing more heavily in specific demographics or monetization opportunities around pricing and bundling. This is very similar to the situation Elliott saw with Pinterest – a declining user base (like Tinder) and monetization opportunities to pursue. Elliott announced its Pinterest investment in July 2022 and joined the board in December 2022, where it returned 113% versus 16% for the Russell 2000.
We assume that Elliott will also want a seat on the board here. Given the company's experience and history, the board and shareholders should welcome them. In 2023, activists had some success in 96% of their campaigns, in part because they didn't go too far and instead made reasonable demands. That is the case here. If Elliott asks for a seat on the board, we expect the company to oblige fairly quickly. We would be shocked if this turned into a proxy fight. However, if that were the case, given the company's track record, performance, staggered board membership, and overall vote, it would almost be a foregone conclusion that Elliott would receive board representation.
Elliott reportedly holds an approximately $1 billion stake in Match, representing approximately 9.5%, which likely includes a significant amount of cash-settled derivatives that the company does not qualify as economic under the 13D Rules property.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, an investment fund that invests in a portfolio of 13D activist investments.