Hi there, wondering if you can comment on a few things:
1. Sales to capital ratio - how did you arrive at 4.0x? Looking at 2023CY (I'm on CapIQ) - I'm seeing more in the ~1-1.5x range. My invested capital is ~$3b (BV Equity of ~$0 (slightly negative), BV of Debt of ~$4b, and cash of ~$0.8-$1b.) and my revenue is ~$1b. Implying ~1-1.2x sales to capital.
2. Pricing mix shift - how did you think about how the mix shift in consumer spending on dating apps might change. For example, many apps today charge high fee subscription pricing. This may work for premium apps (e..g, the league, tinder elite) however by and large wouldn't the average consumer adopt a more 'freemium' / 'gamified' model? I imagine this could result in depressed revenue / user, although perhaps this is covered in your conservative revenue growth.
3. Capital structure - in light of the recent starboard activist stake / push for buybacks, how do you think about that in terms of terminal WACC estimate? I agree there would be some leveraging / hence your drop from ~9%+ to 8.75%, just interesting to get your take on that dynamic.
4. Investment catalyst - what do you think the catalyst behind this pick is? In my view it's when they can prove some type of product development that supports stable paid plan take-up (e.g., by Q1 next year). Your conversative estimates are helpful in painting a margin of safety picture, but what is your view on when Match group can show convincing growth.
For what it's worth my valuation is in a similar range (low case ~current price), upside ~$40-$45). Thanks for your thoughts!
Hi there, thank you for the questions. Below you can find my answers:
1. Most software companies have significant initial investment (mostly in R&D), and only a bit of equipment. As they continue to grow, the need for reinvestment is lower, so the future sales-to-capital ratio is much higher than the historical one.
2. This is a great question and indeed, the way I tackle this is by having a conservative growth. I do think apps of this kind will be around for a very long time, and as Match has a significant percentage of the users using their apps, they are in position to iterate much quicker, if there's a better way to operate.
3. I don't think the buybacks (which will lead to a slight shift in the debt/equity structure) will have a significant impact on the WACC. However, I am not as much focused on that. I do think assessing the quality of the business is the first crucial step. The capital structure is important, but definitely secondary. If the share price is below the fair value, buybacks will create value.
4. I don't think there will be convincing growth that's a lot higher than my assumptions. I could be wrong. I see Match Group as a business that is mature to a large extent.
I appreciate your questions, and I hope you find the answers valuable.
Why match and not bumble?
In my opinion, it comes with a similar potential reward, but much lower risk.
Hi there, wondering if you can comment on a few things:
1. Sales to capital ratio - how did you arrive at 4.0x? Looking at 2023CY (I'm on CapIQ) - I'm seeing more in the ~1-1.5x range. My invested capital is ~$3b (BV Equity of ~$0 (slightly negative), BV of Debt of ~$4b, and cash of ~$0.8-$1b.) and my revenue is ~$1b. Implying ~1-1.2x sales to capital.
2. Pricing mix shift - how did you think about how the mix shift in consumer spending on dating apps might change. For example, many apps today charge high fee subscription pricing. This may work for premium apps (e..g, the league, tinder elite) however by and large wouldn't the average consumer adopt a more 'freemium' / 'gamified' model? I imagine this could result in depressed revenue / user, although perhaps this is covered in your conservative revenue growth.
3. Capital structure - in light of the recent starboard activist stake / push for buybacks, how do you think about that in terms of terminal WACC estimate? I agree there would be some leveraging / hence your drop from ~9%+ to 8.75%, just interesting to get your take on that dynamic.
4. Investment catalyst - what do you think the catalyst behind this pick is? In my view it's when they can prove some type of product development that supports stable paid plan take-up (e.g., by Q1 next year). Your conversative estimates are helpful in painting a margin of safety picture, but what is your view on when Match group can show convincing growth.
For what it's worth my valuation is in a similar range (low case ~current price), upside ~$40-$45). Thanks for your thoughts!
Hi there, thank you for the questions. Below you can find my answers:
1. Most software companies have significant initial investment (mostly in R&D), and only a bit of equipment. As they continue to grow, the need for reinvestment is lower, so the future sales-to-capital ratio is much higher than the historical one.
2. This is a great question and indeed, the way I tackle this is by having a conservative growth. I do think apps of this kind will be around for a very long time, and as Match has a significant percentage of the users using their apps, they are in position to iterate much quicker, if there's a better way to operate.
3. I don't think the buybacks (which will lead to a slight shift in the debt/equity structure) will have a significant impact on the WACC. However, I am not as much focused on that. I do think assessing the quality of the business is the first crucial step. The capital structure is important, but definitely secondary. If the share price is below the fair value, buybacks will create value.
4. I don't think there will be convincing growth that's a lot higher than my assumptions. I could be wrong. I see Match Group as a business that is mature to a large extent.
I appreciate your questions, and I hope you find the answers valuable.
Thanks for your response, helpful insight!