Should you swipe right on dating apps?
Technology means that even in lockdown, people can continue dating and meeting new people. Can dating apps lead to an investment opportunity as well as a love match?
Mentioned: Match Group Inc (MTCH)
The way we find a life partner has changed since the advent of the internet and particularly over the past decade. Once upon a time, couples would meet through friends, family, or at work. Now we turn to our smartphones to find us a partner.
“No longer the shame of the internet, the dating stats speak for themselves,” says James Thomson, manager of the London-based Rathbone Global Opportunities. "Today, 40 per cent of couples in a relationship met online, up from 3 per cent just 10 years ago."
Most of us have heard of Tinder, Bumble or Hinge, and many people will have used one of these dating apps - you may even have checked on the app today. Online dating is another of the digital trends that the coronavirus has magnified this year and, of course, there are plenty of investment opportunities as a result.
“Online dating is gaining acceptance and it benefits from the rising spending power among millennials,” says Ivo Cohen, manager of the five-star rated Invesco Global Consumer Trends fund.
Covid-19 has certainly benefited the industry; online dates can still occur in the strictest of lockdowns and there is no risk of spreading the virus when you're talking through an app. “Social distancing means loneliness and often dating apps are the cure,” Cohen adds.
Looking for love
While there are more 600 million single people already online, Cohen believes it’s still early days for dating apps: “The leading dating app company has a market penetration of around 10 per cent, and only 1 per cent if we consider only paying subscribers per month.”
Contrary to what you might expect, during the early days of lockdown, engagement with online dating sites actually fell. It suggests that users were wondering what the point of finding a match online was if they couldn’t then meet in person. But take-up has since rebounded. Indeed, the latest earnings figures of online dating giant Match Group (MTCH) show revenues were considerably ahead of expectation in the third quarter at around $600 million. The stock has seen its share price almost triple since the depths of the sell-off in March from a low of $47 to $140 today.
Women in particular used lockdown as an opportunity to get to know their potential partners from the comfort of their homes, says Cohen. Daily swipes from women under the age of 30 jumped by more than 40 per cent in the months after lockdown. “The female under 30 demographic is the most valuable since it drives the all ecosystem,” he adds.
Thomsom likes Match Group because it owns many of the most popular online dating apps including Tinder, OKCupid, Match, and Plenty of Fish. It is now the largest dating site group in markets outside the English-speaking world. “Match owns the entire dating lifecycle – young, old, and regardless of your sexuality,” says Thomson. “There are plenty of free features to its apps but to skip a few steps or raise your profile, premium paid features are a helpful tool to up your game.”
For instance, Tinder Gold allows singles to see who "likes" them before they decide in which direction to swipe. “After all, who wouldn’t want to know if the other person is even slightly interested?,” adds Thomson. Meanwhile, Tinder U (Tinder University) has proven particularly popular as college students are stuck in their dorms or even worse, at home with their families.
Match.com has also proved to be innovative and able to embrace changes, two essential skills for companies in an uncertain environment. “Rather than wasting hours on pointless dates with creeps, all Match users had a chance to meet potential partners over video conferences, making some emotional connections and, of course, a chance to check out their apartments from a safe distance,” says Thomson.
But the stock has a one-star rating from Morningstar, indicating that its current share price is above their fair value estimate. MTCH is significantly overvalued at a 60 per cent premium, according to analyst Ali Mogharabi. He thinks the group will benefit from growth in both singles and internet users, and will stay ahead of its competition. But he also believes that expected revenue growth and margin expansion are "more than priced into the stock".