Why Match Group Inc. Stock Plummeted Today
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What happened
Investors were breaking up with Match Group Inc. (NASDAQ: MTCH) today after the world's leading online dating company offered what seemed to be a tepid outlook in its third-quarter earnings report. As of 2:42 p.m. EDT, the stock was down 13.1%.
So what
The market's reaction to the report was tough to gauge. After the company released earnings last night, shares slipped just 2% to 3% in after-hours trading. Following this morning's earnings call, the stock opened about 5% down, but gradually fell as investors seemed to be nervous about investments for next year that management noted on the call. In an earnings preview, I wrote that the company would have to justify the stock's recent gains with a strong earnings report, as shares had jumped as much as 22% over the last three months on little news.
As for the quarter itself, Match Group's results were strong. Operating income surged 57% to $91.8 million, fueled by strong growth in Tinder and the company's acquisition last October of PlentyOfFish. Earnings per share came in at $0.23, well above estimates of $0.19.
Top-line growth was strong as well, with dating revenue increasing 22% to $287.5 million. However, due to a surprise drop in sales from the company's other business segment, The Princeton Review, total revenue was up only 18% to $316.4 million, short of expectations of $318.1 million.
Now what
Match Group is a different kind of company from what Wall Street is familiar with, operating in a new industry. There is no benchmark in online dating for analysts to compare it to. Therefore, ambiguous reports like today's are going to lead to volatility in the stock.
In the slideshow accompanying today's call, management said it expected revenue growth of 15% to 20% next year, but was vague on its EBITDA (earnings before interest, taxes, depreciation, and amortization) margin, saying that would depend on discretionary spending in areas like marketing.
Investing in Tinder, which saw its paid member count nearly triple in the past year, is the right thing to do for the long-term success of the business. The swipe-based dating app is increasingly becoming the primary moneymaker in Match Group's portfolio, and giving it the resources it needs to keep growing makes sense.
Operating income won't jump by 57% every quarter, but Match doesn't need it to. EPS could top $1 next year, making the stock a steal at today's price near $15. Given that future, it's hard to see today's drop as anything but a buying opportunity.
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Jeremy Bowman owns shares of Match Group. 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.