Aiming To Leverage AI, New CEO Spencer Rascoff Will Improve Product Experience From 2025 Onwards

Key Takeaways

• Leveraging AI and trust initiatives aims to boost user engagement and trust, enhancing user retention and long-term revenue growth.
  
• Strategic monetization and expansion in underrepresented demographics could offset legacy declines, increasing revenue and net margins.
  
• Slower-than-expected growth, execution risks, and FX headwinds at Tinder may impact Match Group's revenue and margins despite necessary trust and safety initiatives.

Catalysts

Engages in the provision of digital technologies.

• Match Group's new CEO, Spencer Rascoff, emphasizes leveraging AI to drive innovation and improve the product experience, which is expected to enhance user engagement and revenue growth in 2025 and beyond.
  
• The company plans to expand its AOI margins by 3 points by 2027, focusing on cost discipline while aiming for improving revenue growth, supporting earnings expansion.
  
• Initiatives around trust and safety improvements, including biometric verification, aim to enhance user trust and retention, which could increase long-term user base stability and reduce customer acquisition costs, positively impacting net margins.
  
• Emerging brands within the E&E segment are targeted for growth by focusing on underrepresented demographic markets using a scalable platform strategy, which could offset declines in legacy brands and contribute to overall revenue growth.
  
• Strategic monetization initiatives at Tinder, such as optimizing existing a la carte features and introducing new ones like personalized first impressions, are designed to capture more revenue per user without heavily relying on increasing the total number of payers, enhancing net revenue.

Match Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Match Group's revenue will grow by 3.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 15.8% today to 18.8% in 3 years time.
• Analysts expect earnings to reach $722.6 million (and earnings per share of $3.08) by about March 2028, up from $551.3 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $809.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.5x on those 2028 earnings, down from 14.8x today. This future PE is lower than the current PE for the US Interactive Media and Services industry at 17.9x.
• Analysts expect the number of shares outstanding to decline by 5.74% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.52%, as per the Simply Wall St company report.

Match Group Future Earnings Per Share Growth

Risks

• Match Group's full-year 2024 revenue growth was only 3% year-over-year, indicating slower-than-expected revenue growth, which could impact future earnings if the trend continues.
  
• Concerns around the effectiveness and timing of AI and monetization initiatives at Tinder could impact their ability to drive sustained growth and revenue improvements as anticipated.
  
• FX headwinds, particularly at Tinder, are impacting revenue and margins, which could challenge their ability to expand margins and grow revenue in foreign markets.
  
• Trust and safety initiatives, while essential, may initially lower user bases and revenue, creating short-term financial pressure that could affect overall revenue growth.
  
• Declines in Tinder's year-over-year direct revenue growth due to negative MAU trends and potential execution risk in rolling out planned monetization initiatives might affect overall revenue and earnings growth targets.

Valuation

• The analysts have a consensus price target of $36.444 for Match Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $52.0, and the most bearish reporting a price target of just $32.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.9 billion, earnings will come to $722.6 million, and it would be trading on a PE ratio of 13.5x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $32.62, the analyst price target of $36.44 is 10.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.