Match Group, Inc. — Q3 2020 Form 10-Q
Business context and reporting period. The filing covers the quarter and nine months ended September 30, 2020, and was filed November 6, 2020. Match Group operates a global portfolio of dating products, including Tinder, Match, Hinge, OkCupid and PlentyOfFish. The June 30, 2020 separation from IAC moved IAC’s other businesses into discontinued operations, affecting year-over-year and balance-sheet comparisons.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $639.8 million | $541.5 million | $1,739.9 million | $1,504.1 million |
| Operating income | $200.2 million | $175.2 million | $533.1 million | $464.1 million |
| Operating margin | 31% | 32% | 31% | 31% |
| Adjusted EBITDA | $249.2 million | $205.2 million | $651.3 million | $562.0 million |
| Adjusted EBITDA margin | 39% | 38% | 37% | 37% |
| Net earnings (loss) attributable to Match Group shareholders | $132.6 million | $128.5 million | $(12.0) million | $330.7 million |
Revenue and operating trends. Q3 revenue rose 18%; direct revenue increased 18%, with North America up 20% and International up 17%. Average subscribers grew 12% to 10.8 million and total ARPU rose 4% to $0.62. Management attributed growth mainly to subscriber gains at Tinder, Hinge, Pairs and PlentyOfFish, and increased à la carte purchases. Nine-month revenue rose 16% (17% excluding foreign-exchange effects). Cost of revenue grew faster than revenue, primarily due to app-store fees; Q3 selling and marketing expense declined as a share of revenue, while general and administrative costs increased.
Profit and cash flow. Q3 operating income increased 14% and Adjusted EBITDA increased 21%. Q3 diluted EPS attributable to shareholders was $0.46, versus $0.63 a year earlier; diluted EPS from continuing operations was $0.45 versus $0.52. For the nine months, continuing-operations earnings were $413.7 million, but the company reported a $12.0 million shareholder-attributable net loss, principally reflecting a $366.1 million loss from discontinued operations. Continuing-operations operating cash flow was $518.8 million for the nine months, versus $468.3 million.
Liquidity and debt at September 30, 2020. Cash and cash equivalents were $398.9 million; current assets were $738.2 million and current liabilities $488.2 million. Gross debt principal was $3.893 billion and reported long-term debt, net, was $3.521 billion. The company had $749.8 million available under its $750 million revolving credit facility, with no facility borrowings outstanding. Continuing-operations investing cash outflow was $3.912 billion, including a $3.871 billion net cash distribution related to the IAC separation. The balance sheet reported shareholders’ equity of $(1.443) billion; separation-related transactions substantially changed the capital structure, so comparison with December 2019 is not directly like-for-like.
Material changes, outlook and risks
- Separation and financing: Match Group became a separate public company on June 30. Debt principal increased by $600 million from December 2019, including new 4.125% and 4.625% senior notes; the 6.375% notes were redeemed. The $1.4 billion net proceeds from IAC’s July sale of newly issued Match Group shares were transferred to IAC under the separation terms.
- Expenses and unusual items: Q3 G&A rose 30%, in part due to a stock-compensation modification charge and higher headcount. Nine-month other income included a $35.0 million legal settlement and was partly offset by a $16.5 million bond-redemption loss. The company recorded a $4.6 million impairment of the Match brand in the UK and Meetic brand in Europe, citing COVID-19 pressure on projected revenues.
- Outlook: The company expected 2020 capital expenditures of approximately $50–$55 million, primarily for Tinder office expansion and capitalized software. The filing does not provide a clear revenue or earnings forecast.
- Principal risks: Management highlighted competition, user growth and monetization, COVID-19 effects, foreign-exchange exposure, cybersecurity and user-data protection, regulation, and separation-related uncertainties. App-store transactions generally incur fees of about 30%; Google announced a requirement for developers to use its in-app payment system for purchases beginning September 30, 2021, which management said could adversely affect results if enforced.
- Contingencies: Tinder optionholder litigation seeks at least $2 billion in compensatory damages plus punitive damages; the company disputes the claims. The FTC consumer-practices lawsuit remained pending and was stayed in October 2020; the DOJ separately ended its investigation and released the company from its subpoena. The company also disclosed other shareholder, consumer, regulatory and data-protection matters, and stated that outcomes are uncertain.
Most important facts for investors to verify
- Whether subscriber growth, ARPU and direct-revenue trends continue, particularly at Tinder and Hinge.
- Whether rising app-store fees and in-app purchase mix pressure cost of revenue and margins.
- The post-separation debt burden, exchangeable-note dilution and capacity to generate cash after debt service.
- Actual 2020 capital expenditures versus the stated $50–$55 million expectation.
- Developments in the Tinder optionholder, FTC and other legal or regulatory matters, including potential financial exposure.
- The effect of COVID-19 and foreign-exchange movements on brand performance and international revenue.