Company: Match Group (MTCH)
Business: Match Group provides 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 in over 40 languages to users all over the world.
Stock Market Value: $10.02B ($36.88 per share)
Activist: Elliott Management
Percentage Ownership: ~9.5%
Average Cost: n/a
Activist Commentary: Elliott is a very successful and astute activist investor. The firm’s team includes analysts from leading tech private equity firms, engineers, operating partners – former technology CEOs and COOs. When evaluating an investment, the firm also hires specialty and general management consultants, expert cost analysts and industry specialists. The firm often watches companies for many years before investing and has an extensive stable of impressive board candidates. Elliott has historically focused on strategic activism in the technology sector and has been very successful with that strategy. However, over the past several years its activism group has grown and evolved, and the firm has been doing a lot more longer-term activism and creating value from a board level at a much larger breadth of companies.
Elliott Management has taken an approximately $1 billion position in Match Group (MTCH).
Behind the scenes
Match Group is by far the global leader in online dating apps with over 45 brands, the most notable of which are Tinder and Hinge. Tinder is the most downloaded dating app in the world and accounts for over half of the company’s revenue at approximately $1.9 billion and has over 50% earnings before interest, taxes, depreciation and amortization margins, but lackluster growth. Hinge accounts for $400 million of the company’s revenue but has been growing at over 100% per year. This is a market-leading company with an amazing financial profile – growing top line, high EBITDA margins and asset light generating revenue through a subscription model. However, their stock price performance compared to both peers and the broader market has been abysmal, with the stock down over 60% since the company’s separation from IAC in July 2020.
The opportunity here is to get growth back up – it has gone from a 35% compound annual growth rate to high single digits – and to get margins well above 40% from their current level at 36%. The main problem here is oversight, primarily in the form of management turnover. Match Group, the holding company, has had four CEOs in six years. Tinder, the largest business, has had six CEOs in eight years. With the median tenure of a Tinder CEO at one year, it makes it nearly impossible to implement a long-term strategic plan. Moreover, the company has also done some bad strategic deals, including its June 2021 acquisition of Hyperconnect at the top of the market in a deal valued at $1.73 billion, which has already incurred $270 million of impairment charges. So 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 getting the right CEO at Tinder to set a decisive 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 CEO of Tinder, ending a nearly two-year vacancy where the Match CEO also acted as the Tinder CEO. Once the right leader is at the helm of Tinder, a margin restoration should require no more than basic blocking and tackling, particularly since the company has 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 with more investing in certain demographics or monetization opportunities around pricing and bundling. This is a lot like the situation Elliott saw at Pinterest – declining user base (like Tinder) and monetization opportunities to pursue. Elliott announced its Pinterest investment in July 2022, went on the board in December 2022 and has had a 113% return there versus 16% for the Russell 2000.
We would expect Elliott would likewise want a seat on the board here. Based on the firm’s experience and history, the board and shareholders should welcome them. In 2023, activists have had some success in 96% of their campaigns, in part because they are not overreaching and instead come in with reasonable asks. That is the case here. If Elliott asks for a board seat, we would expect the company to rather quickly accede. We would be shocked if this went to a proxy fight. However, if it did, it would almost be a foregone conclusion that Elliott receives board representation, given the firm’s track record, the company’s performance, the staggered board and the universal ballot.
Elliott reportedly has an approximate $1 billion position in Match, equating to approximately 9.5%, which likely includes a material amount of cash settled derivatives that the firm does not include as beneficial ownership under 13D rules.
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, a mutual fund that invests in a portfolio of activist 13D investments.