Match Group (MTCH)

Dating app company Match (NASDAQ:MTCH) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 3.3% year on year to $831.2 million. Its GAAP profit of $0.44 per share was 17.8% above analysts’ consensus estimates.

Company Overview

Originally started as a dial-up service before widespread internet adoption, Match (NASDAQ:MTCH) was an early innovator in online dating and today has a portfolio of apps including Tinder, Hinge, Archer, and OkCupid.

Consumers today expect goods and services to be hyper-personalized and on demand. Whether it be what music they listen to, what movie they watch, or even finding a date, online consumer businesses are expected to delight their customers with simple user interfaces that magically fulfill demand. Subscription models have further increased usage and stickiness of many online consumer services.

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Match Group’s 3.5% annualized revenue growth over the last three years was sluggish. This was below our standard for the consumer internet sector and is a poor baseline for our analysis.

This quarter, Match Group reported a rather uninspiring 3.3% year-on-year revenue decline to $831.2 million of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and suggests its products and services will see some demand headwinds.

User Growth

As a subscription-based app, Match Group generates revenue growth by expanding both its subscriber base and the amount each subscriber spends over time.

Match Group struggled with new customer acquisition over the last two years as its payers have declined by 4.8% annually to 14.2 million in the latest quarter. This performance isn't ideal because internet usage is secular, meaning there are typically unaddressed market opportunities. If Match Group wants to accelerate growth, it likely needs to enhance the appeal of its current offerings or innovate with new products.

In Q1, Match Group’s payers once again decreased by 730,000, a 4.9% drop since last year. The quarterly print isn’t too different from its two-year result, suggesting its new initiatives aren’t accelerating user growth just yet.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track because it measures how much the average user spends. ARPU is also a key indicator of how valuable its users are (and can be over time).

Match Group’s ARPU growth has been excellent over the last two years, averaging 9.5%. Although its payers shrank during this time, the company’s ability to successfully increase monetization demonstrates its platform’s value for existing users.

This quarter, Match Group’s ARPU clocked in at $19.07. It grew by 1.1% year on year, faster than its payers.

For internet subscription businesses like Match Group, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include customer service, data center and infrastructure expenses, royalties, and other content-related costs if the company’s offerings include features such as video or music.

Match Group has robust unit economics, an output of its asset-lite business model and pricing power. Its margin is better than the broader consumer internet industry and enables the company to fund large investments in new products and marketing during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an excellent 71.9% gross margin over the last two years. That means Match Group only paid its providers $28.13 for every $100 in revenue.

This quarter, Match Group’s gross profit margin was 71.5%, up 1.4 percentage points year on year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Consumer internet businesses like Match Group grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).

Match Group is very efficient at acquiring new users, spending only 24.8% of its gross profit on sales and marketing expenses over the last year. This efficiency indicates that it has a highly differentiated product offering and strong brand reputation, giving Match Group the freedom to invest its resources into new growth initiatives while maintaining optionality.

Investors regularly analyze operating income to understand a company’s profitability. Similarly, EBITDA is a common profitability metric for consumer internet companies because it excludes various one-time or non-cash expenses, offering a better perspective of the business’s profit potential.

Match Group has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer internet business, boasting an average EBITDA margin of 37.1%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Match Group’s EBITDA margin might fluctuated slightly but has generally stayed the same over the last few years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Match Group’s EPS grew at an astounding 32.5% compounded annual growth rate over the last three years, higher than its 3.5% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its EBITDA margin didn’t expand.

We can take a deeper look into Match Group’s earnings quality to better understand the drivers of its performance. A three-year view shows that Match Group has repurchased its stock, shrinking its share count by 11.4%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

In Q1, Match Group reported EPS at $0.44, in line with the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Match Group’s full-year EPS of $1.99 to grow 9.1%.

Although EBITDA is undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Match Group has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the consumer internet sector, averaging 26% over the last two years.

Taking a step back, we can see that Match Group’s margin dropped by 7.7 percentage points over the last few years. If its declines continue, it could signal increasing investment needs and capital intensity.

Match Group’s free cash flow clocked in at $177.7 million in Q1, equivalent to a 21.4% margin. The company’s cash profitability regressed as it was 9.7 percentage points lower than in the same quarter last year, which isn’t ideal considering its longer-term trend.

Match Group reported $414.2 million of cash and $3.43 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.25 billion of EBITDA over the last 12 months, we view Match Group’s 2.4× net-debt-to-EBITDA ratio as safe. We also see its $123.9 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

Match Group's number of users declined and its number of payers fell slightly short of Wall Street’s estimates, showing that demand is still struggling. Despite that, revenue was in line. The major positive was that EPS beat, showing that the company is outperforming on profitability. Overall, this quarter could have been better. The stock traded up 3.9% to $31.55 immediately following the results.

Updated: May 19, 2025 at 10:27 PM EDT

Are you wondering whether to buy Match Group or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

We think Match Group is a solid business. Although its revenue growth was weak over the last three years and analysts expect growth to slow over the next 12 months, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits. And while its users have declined, its impressive EBITDA margins show it has a highly efficient business model.

Match Group’s EV/EBITDA ratio based on the next 12 months is 6.4x. Looking at the consumer internet landscape right now, Match Group trades at a pretty interesting price. If you trust the business and its direction, this is an ideal time to buy.

Wall Street analysts have a consensus one-year price target of $34.07 on the company (compared to the current share price of $29.93), implying they see 13.8% upside in buying Match Group in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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