Business context and reporting period
This is IAC/InterActiveCorp’s unaudited Form 10-Q for the quarter and six months ended June 30, 2019, filed August 8, 2019—not a standalone Match Group filing. IAC consolidated Match Group, ANGI Homeservices, Vimeo, Dotdash and other businesses; at quarter-end IAC held an 80.4% economic interest in Match Group. Amounts below are in U.S. dollars.
Financial results and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $1,186.7m | $1,059.1m | $2,292.5m | $2,054.2m |
| Operating income | $154.3m | $168.4m | $234.2m | $258.4m |
| Net earnings attributable to IAC shareholders | $113.5m | $218.4m | $202.2m | $289.4m |
| Diluted earnings per share | $1.19 | $2.32 | $2.10 | $3.05 |
| Adjusted EBITDA | $259.1m | $265.0m | $449.7m | $453.4m |
| Cash from operating activities | Not provided quarterly | Not provided quarterly | $355.8m | $379.8m |
- Revenue rose 12% in both the quarter and first half. Operating margin fell to 13.0% from 15.9% in Q2, and to 10.2% from 12.6% for the first half.
- Q2 net earnings attributable to IAC shareholders declined 48%; first-half earnings declined 30%. Results include substantial non-operating investment gains in 2018, notably Pinterest gains. Q2 2019 other income was $46.0m versus $171.1m in Q2 2018; first-half amounts were $46.6m versus $166.5m.
- First-half investing cash outflow was $132.7m, including $201.0m for acquisitions and $76.6m of capital expenditures. Cash from operations less capital expenditures was approximately $279.2m, versus $340.1m in the prior-year period.
- At June 30, cash and cash equivalents were $3,152.0m and marketable securities were $161.7m. Long-term debt was $3,581.4m gross principal, or $3,138.5m net carrying value, plus $13.8m current debt. No borrowings were outstanding under the IAC, Match Group or ANGI revolving credit facilities.
- Consolidated cash and marketable securities totaled $3,313.7m, but IAC stated it cannot freely access Match Group’s or ANGI’s cash; those subsidiaries are separate legal entities and debt agreements may restrict distributions.
Material changes and Match Group performance
- Match Group Q2 revenue grew 18% to $498.0m; segment operating income rose 15% to $172.9m and Adjusted EBITDA rose 16% to $203.5m. First-half revenue increased 16% to $962.6m and Adjusted EBITDA increased 14% to $358.6m.
- Match growth was driven by higher average subscribers, particularly at Tinder, and international growth. Q2 average subscribers were 4.6m internationally, up 27%, and 4.5m in North America, up 9%; total ARPU rose 2%.
- At IAC overall, Q2 Adjusted EBITDA fell 2%, despite Match and Dotdash growth, primarily due to lower ANGI and Applications results, a loss in Emerging & Other, and higher Vimeo and corporate losses. First-half Adjusted EBITDA fell 1%.
- IAC issued $1.15bn of exchangeable notes in Q2; Match Group issued $350m of 5.625% senior notes in February and used proceeds in part to repay its revolving-facility borrowings. Consolidated debt net carrying value increased from $2,245.5m at year-end 2018 to $3,138.5m.
Outlook, risks, contingencies and unusual items
- IAC expected 2019 capital expenditures to exceed 2018’s $85.6m by approximately 65%–80%, mainly for ANGI software and facilities investments and Tinder office expansion. Management said available liquidity and expected operating cash flows should fund foreseeable operating needs and commitments.
- Google represented 17% of consolidated revenue in both Q2 and the first half of 2019. The amended services agreement runs through March 31, 2023, but Google’s Chrome Web Store policy changes effective July 1, 2019 could reduce distribution and profitability of IAC desktop products and potentially lead to goodwill or intangible-asset impairment.
- Management cited higher ANGI marketing costs and weaker efficiency of free Google search traffic; it expected the trend to continue in the near term. Other stated risks include app-store fees, platform policy changes, foreign exchange, cybersecurity, regulation, indebtedness and acquisition execution.
- A Tinder optionholder lawsuit seeks at least $2bn in compensatory damages plus punitive damages. The court dismissed some claims but allowed others to proceed; IAC and Match Group deny the allegations. Separately, on August 7, 2019, the FTC voted to assert claims against Match.com and referred the matter to the DOJ. A prior settlement proposal included $60m, but no resolution had been reached; litigation could involve higher amounts.
- Other unusual items include a $29.8m Q2 unrealized Pinterest gain in 2019 (versus $128.8m in 2018), and an $8.2m first-half loss on sale of a business. The six-month 2019 income tax benefit was $47.3m despite pretax income, principally due to tax benefits from stock-based awards.
- After quarter-end, IAC said it would explore distributing its interests in Match Group and ANGI to shareholders; it had made no decision whether to proceed. IAC also announced redemption of its remaining 4.75% notes, and completed initial funding of a $250m Turo investment.
Key facts investors should verify
- Confirm the reporting scope: the filing is IAC consolidated reporting, and Match Group results are presented as a segment rather than as a standalone company’s full financial statements.
- Assess whether Match’s subscriber and revenue growth can continue while mobile app-store fees and legal costs rise.
- Track the FTC/DOJ matter and Tinder optionholder litigation, including potential financial exposure and developments after the filing date.
- Evaluate Google concentration and the actual impact of Chrome Web Store policy changes, including impairment risk for the Desktop reporting unit.
- Review debt-service obligations, exchangeable-note dilution/settlement terms, capital spending plans and the practical availability of cash held at Match Group and ANGI.
- Distinguish recurring operating performance from investment gains, tax benefits, stock-based compensation and other non-GAAP adjustments.