The
owner of Tinder and other dating sites has filed to go public but will
be controlled by Barry Diller’s IAC/InterActive Corp. even after it
sells shares in its subsidiary.
by Laura Berman
The initial public offering of dating site owner Match Group Inc. will likely result in a valuation of about $5 billion and not one as much as 40% higher, if the stock price of its parent company, IAC/InterActiveCorp. (IACI), is any indication, according to one analyst.
“The IAC stock is certainly not reacting like it’s a big valuation,” said Benchmark Co. analyst Daniel Kurnos in a phone interview, about the Match Group, which filed a Form S-1 with the Securities and Exchange Commission about going public on Oct. 16.
Shares of Barry Diller’s IAC closed at $70.50 on Monday, down 1.2%.
“We had put a valuation on Match in the $7 billion range, but where the [IAC] stock trades around now, it’s difficult to envision that kind of target or price,” Kurnos said, adding that he anticipates a valuation of about $5 billion following the IPO.
Match Group owns dating sites such as Tinder Inc., OKCupid and Match.com and will be split off from New York-based IAC.
The S-1 filing didn’t state the price range or the number of shares being sold. It listed a $100 million placeholder amount it plans to raise. The proceeds will be used in part to pay back debt owed to IAC, though the exact figure was redacted. After paying down that debt, the remaining proceeds will be used for general corporate purposes.
Match shares will trade on the NASDAQ Global Select Market under the ticker symbol “MTCH.”
IAC first announced its plans for a Match IPO on June 25. At the time, IAC said it would list less than 20% of Match’s shares in the offering and that IAC’s remaining stake would consist of both common shares with different voting rights.
New York-based Match Group will issue Class A shares, with one vote per share, and Class B shares, with 10 votes per share. There is also Class C shares that carry minimal voting rights.
According to the Oct. 16 filing, IAC will hold at least 50% of outstanding capital stock, including all the shares of Class B common stock, and therefore continue to control the company.
Some 59 million monthly active users use Match’s portfolio of more than 45 dating sites in 38 languages across almost 200 countries, as of Sept. 30. The company identifies its target market as adults in North America, Western Europe and some other countries who have access to the Internet and aren’t in a committed relationship, which, as of a July 2015 survey, they estimate at 511 million people. (Match lists over 30 countries outside of North America and Western Europe as part of its core market, in South and Central America, the Middle East, Eastern Europe, throughout Asia and Oceana.)
However, as growth in the United States has taken off, international growth has slowed. For the six months ending June 30, direct revenue in North America rose 11% year-over-year to $285 million from $257 million. During the same period, however, international direct revenue dropped to $130 million from $138 million, a 6% fall.
Match Group’s most successful product is Tinder, which, according to the prospectus, “has since risen to scale and popularity faster than any other product in the dating category” since its launch in 2012. The product has seen “significant adoption among the millennial generation, previously underserved by the dating category.”
Tinder represents a large source of future revenue through advertising, which Match admits in the prospectus “has historically not been a principal focus for us.” The company plans to increase Tinder’s advertising sell-through, which is currently below 2% of available ad inventory.
Cowen and Co. analyst John Blackledge in December 2013 wrote that, following a spinoff, Match could be worth 10 times and 14 times Ebitda. Adjusted Ebitda in 2014 was $273 million, which implies a valuation of $2.7 billion to $3.8 billion at those multiples.
But Benchmark’s Kurnos thinks those multiples underestimate Tinder’s growth potential, and that’s why he values it for closer to $5 billion.
“Most people I knew were using [an Ebitda multiple of] 15 for Match, but some people got dissuaded due to the delay in Tinder monetization,” Kurnos said. “Why would you use [an Ebitda multiple of] 10 in 2015 when Match is going to accelerate growth in 2016 due to Tinder monetization and expansion of ancillary businesses?”
Still, Match Group acknowledged in the Oct. 16 S-1 that Tinder’s symbiotic relationship with Facebook Inc. (FB) could present a risk.
“Users currently register for [and log in to] the application exclusively through their Facebook profile,” the filing reads. “Facebook has broad discretion to change its terms and conditions applicable to the use of its platform in this manner,” which could adversely affect Tinder. Similar risks are present from Apple Inc.’s (AAPL) App Store and Alphabet Inc.’s (GOOG) Google Play Store, where apps such as Tinder are normally downloaded.
A month after announcing its IPO plans in June, Match Group added another dating site to its portfolio, acquiring Vancouver, British Columbia based dating site PlentyOfFish, operated by PlentyofFish Media Inc., for $575 million in cash. PlentyofFish claims to be the largest online dating website in the world in terms of traffic, with more than 90 million registered users.
In addition to its dating sites, Match Group also owns Princeton Review Inc., a test preparation and college counseling service. Tutor.com Inc., which IAC bought in January 2013, acquired Princeton Review from private equity firm Charlesbank Capital Partners LLC for undisclosed terms in a deal announced July 29, 2014. The two companies subsequently merged, took the Princeton Review name and was made part of Match Group.
“This is only a stub spin, which leaves a lot of optionality for control of those ancillary assets like Princeton Review,” added Kurnos. (A stub spinoff is when a company retains ownership of another one even after selling shares.)
IAC is “very excited about the optionality in the education space,” Kurnos went on. “Those have been high-growth engines, and some of them have been inorganic. It tells you, first, that it’s a nice piece to have if Match doesn’t come in as well as expected to mask its growth rate, and second, they can leverage the same software and build Match into a mini-IAC where they have one core product—-Match—-driving investment in Tinder, Princeton Review and other things.”
He anticipates that IAC will retain its estimated 80% majority stake for the foreseeable future. “I don’t see why they wouldn’t” hold onto the stake, he said. “Ultimately it’s just a question of cash flow and what the business outlook looks like.”
For online dating companies, 2014 proved to be a difficult year. Spark Networks Inc. (LOV), which owns niche sites such as ChristianMingle.com and JDate.com, battled pressure from activist Osmium Partners LLC. Another company, venture capital-backed Zoosk Inc., filed for an IPO on April 16, 2014, with a $100 million placeholder, but announced in December that it was shaking up management and reevaluating those plans to go public. The IPO was formally canceled on May 8 due to “unfavorable market conditions,” more than a year after the S-1 was filed.
JPMorgan Securities LLC, Allen & Co. LLC and Bank of America Merrill Lynch are acting as joint book-running managers for Match Group, and JPMorgan and Allen are acting as representatives of the underwriters.
A Wachtell, Lipton, Rosen & Katz team led by Andrew J. Nussbaum and Ante Vucic is providing legal counsel to Match Group on the IPO.
David J. Goldschmidt of Skadden, Arps, Slate, Meagher & Flom LLP is legal counsel to the underwriters.
IAC officials didn’t respond to requests for comment.