Match Group (NASDAQ: MTCH) has successfully capitalized on the growth of online dating, as its recent results indicate. In the third quarter, Match's dating revenue grew 22% year over year to $288 million. In comparison, Match's overall revenue increased 18% from last year to $316 million.
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Match is witnessing an improvement in the contribution of dating services to its business, with them now accounting for more than 91% of its top line. The rapid growth in Match's dating revenue is a result of two factors: the huge end-market opportunity in online dating and people's willingness to pay for such services. These are the two reasons the company has lots of room to grow.
Match has a growing market
Since 2011, the online dating market has grown almost 42%, according to Match. In 2011, there were 360 million singles online looking for a partner, and at that point, Match had a monthly active user count of 8 million, representing just over 2% of the market.
In 2016, Match has a monthly active user count of 59 million and the number of single people online looking for partners has grown to 511 million, according to the company. That gives Match a hand in 11.5% of the online dating market.
E = estimate. Data source: Match Group. Chart by author.
In the next four years, Match expects the number of single people online to grow another 31%, as the chart above shows. It got that number assuming the single population grows in line with projected total population growth. The company expects to see big growth in India, Russia, Eastern Europe, South Korea, and Japan. India tops that list with an estimated 197 million singles.
Match is already taking advantage of this fast-growing market; its online dating app Tinder recorded 400% growth in India last year. India is already Tinder's biggest market in Asia, and it is likely that the app will enjoy more growth there due to a favorable dating demographic.
Indians are now marrying later and the trend of live-in relationships and looking at options before walking down the aisle are creating awareness, which is giving a boost to online dating.
India's tier 2 cities are proving to be the growth hot spots for Tinder, which in April was reportedly getting over 14 million swipes each day in India as compared to just 7.5 million seven months previously.. Looking ahead, over 300 million people in India are expected to buy smartphones in the coming two to three years, a Tinder executive told The Economic Times, so Match Group's target market will continue expanding.
Tinder accounts for 27% of Match Group's total paid member base. Additionally, the app is growing at a faster pace than Match's other services. During the third quarter, Tinder accounted for approximately 66% of the company's total paid member additions by bringing onboard 933,000 paid members. So, it is evident that the growth in emerging markets is having a positive impact on Tinder's metrics, which is eventually driving Match's overall performance.
People are paying for online dating services
Match has successfully monetized online dating as its impressive revenue growth shows. More importantly, the company is profitable. Its net earnings have gone up 15% in the first nine months of the year to $97.6 million.
The growth in Match's revenue and earnings is because people are willing to pay for online dating across the globe. In fact, the rate of growth in Match's paid member count is greater in international markets compared to North America.
Data source: Match Group. Chart by author.
The fact that people are paying for online dating services in international markets is good news for Match since they will be accounting for most of its growth going forward. Additionally, the launch of new features by Match will be another catalyst toward improving monetization.
For instance, by adding a Boost feature to Tinder, Match is now allowing users to put their profiles at the top of the feed for 30 minutes. Tinder is reportedly testing pricing between $1.99 and $3.99 for a single Boost, though the price will vary depending on the number of boosts bought together in a bundle.
By adding features such as this, Match is making smart moves to improve its monetization prospects through Tinder.
Additionally, in order to reduce its dependence on Tinder, Match Group has decided to boost investment in its other properties in 2017. The company is exploring opportunities through technologies such as augmented reality and virtual reality. As Fool contributor Jeremy Bowman pointed out: "A company like Match Group could use technology to offer an initial 'experience' before an actual in-person date as a way to bridge the gap between texting after an initial connection and going on a date... "
It is evident that Match is working on delivering a better dating experience, which should help it grab a bigger piece of the online dating market in the long run. So, even after delivering impressive financial growth in recent quarters, Match Group should be able to sustain the momentum An improving end market and Match's smart monetization moves aimed at people willing to pay are two key factors that indicate Match is built for long-term growth.
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Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Match Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.