Thesis: Through advancements and application of Ai in matchmaking we will see a re-acceleration of the currently shrinking online dating market and importantly a higher share of paying costumers & higher pricing on the top end of features.
This will lead to margin expansions for dating apps & rising stock prices from currently modest valuations.
On Monday I started to build an position in Match Group and a significantly smaller one in Bumble.
Both companies together completely dominate the western dating market particularly through their brands Tinder, Hinge and Bumble.
While Match Group has the currently best & only growing dating app on the market (Hinge) with a strongly executing team, valuations of Bumble are significantly cheaper and the missionary and charismatic founder Whitney herd Wolfe returned recently.
Bumble has significant execution risks particularly on product, ai, team and brand ethos and is a significantly riskier turnaround play.
Match Group is a strong FCF generator and owns a gem with Hinge, but it’s main brand Tinder currently also experiences declining user numbers.
Once i have more time i will explain my reasoning in more detail.
Initial unstructured notes on the topic an be found here.
I think you left out the idea that people are using general social media platforms for dating purposes. This is something I saw in a report; I would look into its validity to understand consumer behaviour on this front a bit better.
Also, I would spend more time considering the bear case where the quality of the service remains constant, and what the current valuation means in such a case. I think this is what really makes the bet a great one, as if there is upside participation in the case of increased service quality and therefore higher pricing potential and product adoption, that’s brilliant. But if the downside is covered also, that’s superb. So the action point here is to have a level of confidence in the continued usage of dating apps, even if the product quality does not change that much, that still justifies current pricing. I believe this is quite possible considering Match is trading at like 10x earnings, and Bumble at 5x, given other business risks these guys are facing. Super interesting stuff — if the downside is a no-brainer, the upside gets much more exciting.
Tinder CEO will depart in July, Match Group CEO would step in to lead the team
Tinder CEO Faye Iosotaluno will step down in July, Match Group CEO Spencer Rascoff would step in to lead the team.
Iosotaluno was CEO since January 2024 and has been with Match Group for almost 8 years.
In 2024, Tinder generated approximately $1.94 billion in direct revenue, accounting for over 55% of Match Group’s total revenue of $3.5 billion (page 39).
Match has been facing considerable activists pressure in recent years over its underperformance, leading to management changes including the appointment of Rascoff as CEO in February.
Fair points.
On the first one I would say yes people use social media for dating as well but there will always be space for dedicated dating apps as this allows people to be clear about their intentions (Instead of being cold approached on socmed). Apps like Instagram certainly get better at suggesting users you might be interested in and if there is any data e.g. from surveys how people met their partners would be interesting.
On the second one I would say it’s a 99.999% likelihood that those apps will get better given that they simply did not use ai before in a meaningful way in their products and there are a lot of concrete product improvement ideas and excitement around that question. (I recommend listening to the ceos of hinge e.g. on the match investor day 2024 or to the bumble ceo on the q1 earnings call) + there is concrete evidence and data (e.g. from hinge) that initial algorithm improvements are working.
So I think a constant scenario when it comes to technology is not realistic. Without improvements I think there is a risk that bumble & tinder apps would loose users over time as there is some sort of „swiping fatigue“ as many users don’t feel they get partner suggestions which are truely interesting to them. (But hinge will keep growing even with their current product - which is the best and has the best algorithm according to my testing)
Agreed on this front, but the confidence in the increase of product quality does not necessarily mean an increase in confidence with regards to revenue and profits right, although there is a relationship there which justifies the upside arguement. However, considering less confidence on the effects of the increased earning power of the company, are you comfortable owning a business with the current cash flows it generates and expectations, considering it’s price? How confident are you in that front, and also would love if you could share sizing (% wise) to get an idea of conviction here.
To clarify even further, if you bought the business outright do you think you would lose money based on the expected future cash flows of the business, produced less than satisfactory increases in earning power, similar to that which we are currently observing?
Tinder launches Double Date feature, which enable users to pair with friends and match with other pairs.
Users can invite up to three friends to go on double dates with them.
Tinder said their internal tests found that Double Date users send 35% more messages than in a typical one-on-one chats and that 15% of users who accepted Double Date invites in Europe were new users or recently reactivated their accounts.
The feature is available immediately to US users while global users will have access to it next month.
Tinder had launched Double Date in 2017 but received backlash over privacy concerns and ambiguity about whether the option was meant for monogamous people.