Business context and reporting period
Filing mismatch: The supplied filing is IAC/InterActiveCorp’s Form 10-Q, filed November 9, 2018, for the quarter ended September 30, 2018—not a standalone Match Group 10-Q. It reports IAC’s consolidated results and includes Match Group as a reportable segment. Match Group’s segment figures below are therefore not a complete standalone set of financial statements.
IAC’s portfolio included Match Group, ANGI Homeservices, Video, Applications and Publishing. IAC held an 80.9% economic interest and 97.5% voting interest in Match Group at quarter-end.
Financial results and key metrics
| Match Group segment | Q3 2018 | Change vs. Q3 2017 | Nine months 2018 | Change vs. 2017 |
|---|---|---|---|---|
| Revenue | $443.9 million | +29% | $1.273 billion | +34% |
| Operating income | $139.9 million | +54% | $402.3 million | +73% |
| Adjusted EBITDA | $165.0 million | +38% | $478.3 million | +52% |
Match’s operating margin was approximately 31.5% in Q3, versus 26.5% a year earlier. Adjusted EBITDA margin was approximately 37.2%, versus 34.8%. Adjusted EBITDA is a non-GAAP measure defined by IAC; it excludes specified expenses, including stock compensation, depreciation and intangible amortization.
- Revenue drivers: Q3 North America direct revenue increased 25% and international direct revenue increased 38%. Average subscribers rose 18% in North America and 29% internationally, driven principally by Tinder. Total ARPU increased 6%, with Tinder Gold and à la carte purchases contributing; international ARPU faced foreign-exchange pressure.
- Consolidated IAC results: Q3 revenue was $1.105 billion (+33%); operating income was $172.8 million, compared with an $18.6 million loss; Adjusted EBITDA was $267.3 million (+94%). Net earnings attributable to IAC shareholders were $145.8 million, versus $179.6 million. The year-earlier comparison included a much larger income tax benefit.
- Consolidated cash flow, nine months: Operating cash flow was $671.7 million, versus $297.8 million; investing cash flow was negative $273.6 million; financing cash flow was negative $359.9 million. Match Group generated $425.2 million of operating cash flow, as disclosed in IAC’s liquidity discussion.
- Liquidity and debt: IAC consolidated cash and cash equivalents were $1.671 billion, with an additional $208.6 million of marketable securities. Consolidated debt, net, was $1.984 billion. Match Group debt principal totaled $1.275 billion and its carrying amount, net of discounts and issuance costs, was $1.255 billion. Match Group held $402.6 million of cash and marketable securities, but its cash is not freely available to IAC; Match is a separate public company.
Material changes versus the prior comparable period
- Match Group’s revenue and operating income grew substantially, primarily on subscriber growth, Tinder monetization and higher direct revenue in both North America and international markets.
- Match Group’s cost of revenue rose, including higher mobile app-store fees as a greater share of revenue came through app stores. Marketing investments also increased in certain brands, including Pairs and OkCupid.
- IAC’s year-over-year comparisons were affected by the 2017 combination of HomeAdvisor and Angie’s List into ANGI Homeservices, acquisition and segment changes, and reduced stock-based compensation charges related to that combination.
- IAC’s nine-month other income included $126.4 million of unrealized equity-investment gains and $27.9 million of realized investment gains. These items materially contributed to the increase in earnings before tax and should not be treated as recurring operating performance.
Outlook, risks, contingencies and unusual items
- Guidance: The filing provides no specific Match Group revenue, earnings or subscriber guidance. IAC said it expected 2018 capital expenditures to be approximately 20% higher than in 2017, driven in part by ANGI investments.
- Match dividend after quarter-end: On November 6, Match Group declared a $2.00-per-share special dividend, totaling approximately $560 million and expected to be funded with cash on hand and incremental debt as necessary. IAC expected to receive approximately $450 million.
- Litigation: Six former Match/Tinder employees sued IAC and Match Group, alleging improper Tinder valuation and seeking at least $2 billion in compensatory damages plus punitive damages. Defendants moved to dismiss; the companies said they believe the claims are without merit. A separate Tinder age-tiered pricing class action was in discovery. The earlier Match IPO securities class action was dismissed, and the plaintiffs’ appeal period expired.
- Other business risks: The filing identifies competition, user migration to lower-monetizing products, reliance on third-party platforms and app stores, privacy and cybersecurity, foreign-exchange movements, acquisition and integration risks, and the ability to service debt. Google policy changes affecting desktop-product distribution through the Chrome Web Store took effect in September; IAC expected future negative effects on affected products, partly offset by marketing optimization and mobile growth.
- Post-quarter transactions: IAC announced sales of Dictionary.com and Electus’s television business, with combined proceeds expected to be approximately $130 million, and acquired TelTech. ANGI acquired Handy and issued approximately 8.6 million shares. These events occurred after September 30.
Most important facts for investors to verify
- Confirm that the intended document is this IAC parent-company filing; obtain Match Group’s standalone 10-Q for its complete balance sheet, cash flows and disclosures.
- Assess how much Match Group’s subscriber and ARPU growth, particularly Tinder’s, continued after Q3 and whether app-store fees or marketing spending pressured margins.
- Review the funding, debt impact and cash-flow consequences of the $2.00-per-share special dividend.
- Track the Tinder optionholder litigation, including potential exposure and any developments after the filing date.
- Separate recurring operating performance from IAC’s investment gains, tax benefits and other nonrecurring comparison effects.