Match Group, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; filed August 3, 2023. Match Group operates a global portfolio of dating and social connection brands, including Tinder and Hinge, in one operating segment.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $829.6m (+4%) | $794.5m | $1,616.7m (+1%) | $1,593.1m |
| Operating income (loss) | $214.8m | $(10.1)m | $413.1m | $197.7m |
| Adjusted operating income (non-GAAP) | $301.3m (+5%); 36% margin | $285.7m; 36% margin | $563.8m (+1%); 35% margin | $559.0m; 35% margin |
| Net earnings (loss) attributable to Match Group | $137.3m; diluted EPS $0.48 | $(31.9)m; diluted EPS $(0.11) | $258.2m; diluted EPS $0.89 | $148.7m; diluted EPS $0.50 |
| Operating cash flow | Not presented for the quarter | $329.9m | $20.0m |
Q2 GAAP operating margin was approximately 26%, versus a loss in the prior-year quarter; the comparison is heavily affected by the 2022 impairment charge. Q2 revenue excluding foreign-exchange effects increased 6%, compared with reported growth of 4%. Q2 cost of revenue was 30% of revenue; selling and marketing was 16%, general and administrative 13%, and product development 11%.
At June 30, cash and cash equivalents were $732.6m and short-term investments $8.3m, versus $572.4m and $8.7m at year-end 2022. Gross debt was $3.875bn and debt net of unamortized discounts and issuance costs was $3.839bn. Cash and short-term investments less gross debt imply approximate net debt of $3.134bn. Shareholders’ equity was negative $177.5m.
Six-month operating cash flow was $329.9m; investing cash outflow was $37.4m, including $37.5m of capital expenditures, and financing cash outflow was $133.7m, primarily reflecting $145.1m of share repurchases. Cash increased $160.2m from year-end. The prior-year operating cash flow comparison was affected by a large payment recorded in accounts payable and other liabilities related mainly to the Rad settlement and related arbitrations.
Material changes versus the comparable period
- Q2 direct revenue grew 5%; indirect revenue, principally advertising, fell 7%. Tinder direct revenue rose 6% and Hinge rose 35%, while Match Group Asia declined 4% and Evergreen & Emerging declined 5%.
- Average monthly payers fell 5% to 15.63m in Q2, while revenue per payer rose 10% to $17.41. Management attributed growth in revenue per payer mainly to subscription pricing and increased à la carte purchases; pricing actions also contributed to payer declines.
- Six-month direct revenue rose 2%, with reported declines in APAC and Other (5%), Match Group Asia (9%) and Evergreen & Emerging (7%); Hinge grew 31% and Tinder 3%.
- Q2 operating income improved substantially as impairment and amortization expense fell to $11.3m from $229.5m. The prior-year period included a $217.4m impairment of Hyperconnect intangible assets. Adjusted operating income increased 5% in Q2 but only 1% for the first half.
- Interest expense rose 12% in both Q2 and the first half, primarily due to higher rates on the Term Loan. Its rate was 7.26% at June 30, up from 6.49% at year-end 2022.
Outlook, management commentary and risks
- No revenue or earnings guidance is provided in the supplied filing text. Management expects 2023 cash capital expenditures of $65m–$70m and estimates cash income taxes paid will increase $70m–$80m versus 2022.
- Match Group expects operating cash flows to be sufficient for future obligations. It had $749.6m available under its $750m revolving credit facility, which matures February 2025; no borrowings were outstanding. The Term Loan matures in 2027.
- The company agreed to place $40m in escrow related to its Google litigation; $37.4m had been paid by June 30. Q2 cost of revenue included an $8.1m escrow payment, and first-half cost included $16.2m of such payments.
- The board authorized a new $1.0bn share repurchase program in April 2023. The company repurchased 3.6m shares for $145.1m during the first half; $967.4m remained available as of August 1. Repurchases are discretionary.
- Key exposures include competition and user retention, foreign exchange, third-party app distribution and payment fees, cybersecurity and privacy, acquisition execution, macroeconomic conditions, and substantial indebtedness. The filing adds a risk disclosure on potential reputational, competitive, legal and cybersecurity risks from use of artificial intelligence.
- Legal matters include the company’s antitrust lawsuit against Google and Google’s counterclaims, an FTC lawsuit and investigation, a Tinder age-pricing case, an Irish data-protection inquiry, and a securities class action amended in July 2023. Management says it will defend the claims; it states that current legal matters are not expected to materially affect results or liquidity, but acknowledges outcomes are uncertain.
- Income tax expense was $41.1m in Q2 and $82.8m in the first half; effective rates were 23% and 24%, respectively. Management cites nondeductible stock compensation and state taxes among the factors making the 2023 rates higher than the statutory rate.
Investor verification priorities
- Track payer trends and revenue per payer by region and brand, especially whether pricing-related payer declines continue and whether Hinge growth is sustained.
- Assess underlying operating performance apart from the unusually large prior-year Hyperconnect impairment; compare GAAP results with the company’s non-GAAP adjusted operating income measure.
- Monitor free cash generation, working-capital movements, capital spending and the projected increase in cash taxes.
- Review debt service costs and refinancing or covenant risks, including the floating-rate Term Loan and the February 2025 revolving facility maturity.
- Follow developments in the Google litigation and escrow, other legal and regulatory matters, and the potential implications of the new AI risk disclosure.
- Consider the pace of buybacks against leverage, liquidity needs and the $1.0bn authorization; the program does not obligate the company to repurchase shares.