While Match Group Inc (Nasdaq: MTCH) dominated the market for online dating subscription services and apps for years, the company faces headwinds as Facebook ( FB) announced the launch of its own dating service.
Shares of Match Group dipped 22 percent on Tuesday after Facebook CEO Mark Zuckerberg announced at its annual developer conference that the largest global social network would embark on its own service to build “real long-term relationships, not just hookups” through its main app.
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Tinder, a dating app owned by Match Group, was the apparent focus of his barb since it is known for creating casual encounters. Match Group also owns other well-known dating apps, such as OKCupid.
Zuckerberg pointed out that more than 200 million people on Facebook have discerned themselves as single, and the new offering means current users can connect with each other easily.
Competing with Facebook is no small task, and investors reacted strongly to the news as InterActiveCorp ( IAC), the majority owner of Match Group’s owner, dipped nearly 17 percent. IAC is an internet and media company and owns 16 key brands.
“Headline” risk could impact Match Group’s stock for several quarters, making it an unpredictable stock to keep in a portfolio, says Todd J. Lerner, a registered investment advisor with LBW Financial Services in Valencia, California.
“It will be months or years before we can measure the impact of Facebook on the all-important earnings growth of Match,” he says.
One of Match Group’s problems is that 95 percent of its shares are institutionally owned and the “smart money knows when to sell,” Lerner says.
“Investors need look no further than Snap ( SNAP) for the perils of a market share war with Facebook,” he says. “Their deep pockets and access to cheap capital warrants the profit-taking we saw in Match today. While I’m personally not looking to add exposure to mid-cap growth names this late in the bull market, after the pullback Match Group now finds itself at a [price-earnings-to-growth ratio] of 1.25, a rare growth-at-a-good-price setup in this market.”
Match Group can easily bounce back for the longer-term investor as shares of the company have risen 141 percent over the past 12 months. The company will announce its earnings on May 8. The sell-off on Tuesday was only a temporary setback, says K.C. Ma, director of the Roland George investments program at Stetson University in DeLand, Florida.
“The decline of 20 percent today is not a problem,” he says. “The panic is short-lived. I think the 20 percent dip will recover within weeks.”
The news that Facebook is creating its own dating app where current users can create a separate profile was bad timing in the aftermath of its privacy scandal involving its vendor Cambridge Analytica, a political consulting firm.
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“The recent data scandal will leave Facebook’s users hesitant to have their romantic life in the hands of a currently untrustworthy company,” Ma says. “This news hurts Facebook’s reputation because they are supposedly trying to minimize how much information they will have on their users, and by creating a dating portion of their website, it demands even more personal information.”
Enthusiasm for Facebook’s dating app could be dampened also because its users are older than the demographic of people using Match Group. Out of the total 2 billion users on Facebook, 200 million people have listed themselves as single.
“In other words, one out of 10 Facebook users is single who is in an older age group,” he says. “As one in three U.S. marriages start online, Facebook will start a venture where only 10 percent of its users is interested in the new additional service, while 100 percent of Match Group users are on their sites for the same service.”
While Match serves the same older clientele like Facebook’s users, its Tinder app captures the younger crowd that Facebook “already lost,” Ma says.
The new Facebook dating service has many limitations and is not competitive with Match or Tinder and will only allow people to communicate through text-based messages in its app while photo sharing and sending links are banned.
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“Facebook users cannot swipe left or right like Tinder on profiles,” he says. “The dating feature will ask users to unlock nearby events and interest groups, at which point they can browse the profiles of potential partners with the same interests. Facebook’s new app is cumbersome and unfriendly at best.”
Privacy concerns about Facebook are unlikely to remain an issue since many dating apps already use the social network to authenticate users.
Some traders were skeptical of the long-term value of Match stock before the news of the dating service was announced. Friedrich Chen, an investor, wrote in a Seeking Alpha blog post on March 12 that shareholders should have sold their shares and taken a profit because the company had become “overly reliant on Tinder for subscription revenue and could become a one-trick pony.”
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Match Group Inc (MTCH) May Be Crippled by Facebook’s New Dating Service originally appeared on usnews.com
