The stock price of Match Group (NASDAQ: MTCH), which owns the Tinder dating app, is establishing an inflection point which is likely to set the tone for the remainder of the year. Results were released last Tuesday, resulting in an immediate 15% gap higher on very large volume. However, there has been no follow-through, and the stock price had drifted lower on declining volume.
This could play out as a breakaway gap – with another rally higher – or a very sharp reversal if traders with long positions are trapped. This inflection point represents widely divergent opinions about the stock. Some analysts believe the company will continue to grow earnings as it has in the past, while others believe the market is now saturated and the stock is wildly overvalued.
Revenue Growth Expected To Continue
Last week’s buying came on the back of second-quarter results which beat on the top and bottom line along with the outlook for the third quarter being raised substantially. Group revenue grew 18% to $497 million, $8.8 million ahead of consensus estimates. GAAP EPS were $0.43, 3 cents ahead of estimates.
The average number of subscribers also grew by 18%, which was better than expected. The number of Tinder subscribers grew 37% to 5.2 million, reinforcing the app’s dominance in the market. The group also managed to increase the average revenue per user (ARPU) by 2%, though the operating margin was slightly lower than expected.
For the third quarter, the group sees revenue at $535 to $545 million, $20 million ahead of previous estimates. Match also raised its full-year revenue outlook to $770-800 million.
Full-Year Growth Now in the Price
While these results were very good, the market had been expecting strong growth from the company and the stock price was already up 73% for the year before this result was released. The stock price is now surely pricing in the improved outlook, and further gains will be looking for growth to continue into next year at the same pace.
Whether or not Match can continue to grow its subscriber numbers this rapidly going forward is the key question. Match does have all the markers of a millennial stock that is being driven by momentum – a product young investors understand and use, high visibility and strong growth in subscriber numbers.
Sell-side analysts are a little more skeptical. At least 6 analysts have reiterated their previous calls; two bullish and four neutral. UBS has however downgraded the stock.
Some believe that the market is saturated, and that Match is such a dominant force that there isn’t much remaining market share for it to gain. Market research in the U.S. is pointing to a slowdown for the industry, but several Match apps are seeing strong momentum in Asia.
Match Is a Trading Stock
While the price is a little rich given the rate of earnings growth, Match is very profitable and may justify a premium. However, in the short term, the price action is likely to be driven by momentum, and whether or not there are buyers on the sidelines.
Last week’s buying represented a very big spike in volume. If there is no follow-through, the price could reverse very quickly. However, if there is still demand on the sidelines, a break of $90 could lead to a rapid rally to $100. For now, the fundamentals are irrelevant — Match is a trading stock with support at $82.55 and resistance at $88.
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