Match may experience a resurgence in growth due to activist Elliott's discovery of an opportunity for restoration.

Company: Match Group (MTCH)

Dating products are provided worldwide by the business. Their portfolio of brands includes Tinder, Match, The League, Azar, Meetic, OkCupid, Hinge, Pairs, Plenty Of Fish, and Hakuna, among others. Their services are accessible in over 40 languages to users globally.

Stock Market Value: $10.02B ($36.88 per share)

Activist: Elliott Management

Percentage Ownership:  ~9.5%

Average Cost: n/a

Elliott is a highly skilled and successful activist investor with a team consisting of analysts from top tech private equity firms, engineers, and operating partners who were former technology CEOs and COOs. When evaluating an investment, the firm hires specialty and general management consultants, cost analysts, and industry specialists. Elliott has a long history of focusing on strategic activism in the technology sector and has been highly successful with this approach. However, in recent years, the firm's activism group has expanded and evolved, and it has been doing more long-term activism and creating value from a board level at a broader range of companies.

What's happening

Match Group (MTCH) has attracted an approximately $1 billion investment from Elliott Management.

Behind the scenes

Match Group, a global leader in online dating apps, boasts over 45 brands, including Tinder and Hinge. Tinder, the most downloaded dating app worldwide, generates over half of the company's revenue, which is approximately $1.9 billion, and has over 50% earnings before interest, taxes, depreciation, and amortization margins. However, despite its growth, Tinder's revenue growth rate is lackluster. On the other hand, Hinge, which accounts for $400 million of the company's revenue, has been growing at over 100% per year. Match Group's financial profile is impressive, with a growing top line, high EBITDA margins, and an asset-light business model that generates revenue through a subscription model. Despite this, the company's stock price performance has been poor, with the stock down over 60% since the company's separation from IAC in July 2020.

The challenge is to revive growth, which has decreased from a 35% compound annual growth rate to low single digits, and to increase margins from their current 36% to above 40%. The main issue is poor oversight, mainly due to high management turnover. Match Group, the holding company, has had four CEOs in six years, and Tinder, the largest business, has had six CEOs in eight years. With a median tenure of a Tinder CEO of one year, it is difficult to implement a long-term strategic plan. Additionally, the company has made some poor strategic decisions, such as its June 2021 acquisition of Hyperconnect at the top of the market for $1.73 billion, which has already incurred $270 million of impairment charges. As a result, investors have many doubts about the company, including whether this is the right leadership team, whether Match is a growth or value company, and whether Tinder is melting.

The first step to restoring Tinder's growth is to appoint a CEO with a clear long-term vision for the company. Faye Iosotaluno, who has been Tinder's COO since August 2022, was named CEO in December 2022, filling a two-year vacancy. With Gary Swidler, Tinder's competent CFO who has been there for 8 1/2 years, basic blocking and tackling should be enough to restore margins. To regain strong growth, Tinder can invest in certain demographics or monetization opportunities around pricing and bundling, similar to the situation Elliott saw at Pinterest. Elliott invested in Pinterest in July 2022, joined the board in December 2022, and achieved an 113% return versus 16% for the Russell 2000.

We expect Elliott to request a seat on the board, given the company's history and experience. Activists have had success in 96% of their campaigns because they come in with reasonable asks, which is the case here. If Elliott asks for a board seat, we expect the company to quickly agree. A proxy fight is unlikely, but if it were to happen, it would almost guarantee that Elliott would receive board representation.

Elliott reportedly holds a $1 billion stake in Match, which is about 9.5%, and it's likely that this includes a significant amount of cash-settled derivatives that the company doesn't count as beneficial ownership under 13D rules.

Ken Squire is both the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.