IAC/InterActiveCorp IACI recently announced that it will be spinning off its subsidiary The Match Group as a publicly traded company. The Match Group is a popular online dating service comprising sites like Match.com, Tinder, OKCupid and OurTime. Following the news, shares of IAC rose over 5% in yesterday’s trading session to close at $81.19.
Per the announcement, The Match Group is likely to issue less than 20% of its common stock. The IPO is expected to be completed in the fourth quarter of this year.
Last quarter, Match Group had reported revenues of $239.2 million (31% of IAC revenues), marking an increase of 13% on a year-over-year basis. According to media reports, Match Group’s revenues are expected to increase 18% in 2015 to $1.24 billion.
Of late, online dating has been gaining traction because of the rising number of singles across the world. According to reports, the marriage rate in the U.S. has decreased 40% in the last 25 years. This has led to a significant rise in the number of people looking for a match (as only about 13% of adults do not want to marry).
According to a survey report by The Wall Street Journal (Feb 2015), in a 30-day time period, around 2.36% of adults in the U.S. (roughly 5.6 million) had used dating sites. Market research firm, GfK MRI suggests that this reflects more than a 100% growth over the last 5 years. A 2014 report from IBISWorld forecasted the U.S. dating service industry to grow at 4.2% per annum between 2014 and 2019 with the market size becoming $2.7 billion in 2019.
Competition in the Industry
Match Group is not the only dating portal that has been striving to drive growth through an IPO. Peers like Zoosk and Ashley Madison have both considered rolling out IPOs in the recent past. Hinge, on the other hand, resorted to raising capital from venture capitalists. In 2014, Hinge had raised $12 million, in order to drive growth in International markets.
In Apr 2015, Ashley Madison had declared its plans to initiate an IPO this year itself with intentions to raise as much as $200 million.
Zoosk Inc. on the other hand, had filed for an IPO in Apr 2014 hoping to raise $100 million, but withdrew the application later in May 2015, citing weak market conditions as the reason.
Moreover, the company will face stiff competition from other key listed players like Spark Networks, Inc. LOV and Jiayuan.com International Ltd. DATE.
Spark Networks that has been incorporated in 2007, reported revenue decline of 18.8% in the last-reported quarter with a decrease of 25% in its paid subscriber base. Year to date, the shares have declined 8.08%. On the other hand, Jiayuan.com International Ltd. has witnessed solid growth of 56.8% in the same time period. The China-based company reported revenues of RMB 613.9 million ($98.9 million) in 2014, increasing 24.6% over the last year.
Impact of IPO
IAC believes that given the scope for growth in the dating industry, this IPO can give new life to the Group with added liquidity and the scope for making a few acquisitions. Estimated EBITDA for Match Group in 2015 is $264.9 million. This excludes the $75 million EBITDA that is expected from Tinder alone.
Match.com is already a trusted dating site with over two decades of presence in the industry. On the other hand, there are new sites like Tinder, which have witnessed rapid growth in a short time. This IPO can prove to be a boon for IAC. It comes as no surprise that the company is expecting a significant surge in cash flow, margin and growth through mergers and acquisitions following the IPO.
Tinder is one of the most promising offerings of the Group with over 50 million users and a growth rate of about 300% in 2014. Its scope for growth is immense given the fact that it was developed by IAC and has achieved this growth without the backing of venture capitalists. Moreover, the app has not even been monetized to its full potential yet. It has just started ramping up marketing and advertising on the app and has already witnessed an improvement in engagement levels, reports suggest.
The company believes that the IPO will sufficiently leverage the financials and add value to shareholders in the long run. This is further highlighted by the fact that IAC has recently repurchased 10% of Tinder stock. Furthermore, the IPO will add protection to the Group’s other dating apps (Match.com, OKcupid etc) against peers like Zoosk, Hinge and Ashley Madison, which are also fighting for market share.
However, a credit rating report from Moody's Corporation MCO indicates that this IPO will not have any immediate impact on IAC’s ratings.
To Conclude
While the potential for growth in the online dating market is still vastly untapped, this IPO will be a litmus test for the companies operating in the space. Both IAC and peers will be able to gauge investors’ confidence post the IPO.
The IPO, if well received by investors’ can push IAC significantly ahead of its competitiors, allowing it have the first-mover advantage in driving growth across international markets.
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