Match Group Stock Up 10% – Time to Buy MTCH Stock?

The price of Match Group stock surged over 10% yesterday following news that Google slashed the commission it charged developers for purchases made within its Play Store app marketplace.

According to a blog post published by the company, the service fee will be reduced from 30% to 15% starting on 1 January 2022. This decision for Google has a positive impact on companies that develop apps for multiple purposes and that rely on in-store purchases to bring in revenue.

Match owns multiple popular dating apps including Tinder, Match, OkCupid, and Hinge. Commissions on in-app purchases are part of the firm’s cost revenues, which landed last year at $635.8 million.

Even though this change has no impact on fees charged by Apple from in-app purchases made through its App Store, market participants seem to have priced an increase in Match’s gross margins as a result of Google’s decision to slash its fees.

Can this development keep lifting the price of Match Group stock in the future? In the following article, I’ll be assessing the price action and fundamentals of this online dating business to outline plausible scenarios for the future.

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Match Group Stock – Technical Analysis

In my latest article about Match, I mentioned that the technical outlook for the company was neutral as a result of an ongoing consolidation the price had been experiencing after the sharp uptrend that came after the February-March 2020 pandemic crash.

Back then I stated that a break above the consolidation rectangle may result in the start of a bullish cycle for MTCH stock as it would confirm a bull flag pattern that emerged as a result of the combination of the former uptrend and this consolidation rectangle.

Yesterday’s break was accompanied by elevated trading volumes that exceeded the 10-day average by nearly 3 times. As a result, Match Group rose to all-time highs and momentum oscillators lifted off.

At the moment, the Relative Strength Index (RSI) is standing near overbought levels while the MACD just crossed above the signal line. This move was accompanied by the first positive histogram reading in nearly a month.

A plausible target for Match Group stock using the pattern’s extension would see the stock surging to the $300 level in the following months as long as the $175 support remains intact.

Match Group Stock – Fundamental Analysis

Even though the technical forecast is quite optimistic, is it possible that the fundamentals of the company can improve to an extent that supports this kind of jump?

It is important to note that Match’s gross margins are particularly high despite the impact of in-app commissions. By the end of last year, they stood at around 74%. Meanwhile, the firm’s operating margins have stood fairly unchanged at 32% as well.

In an interview with the Wall Street Journal this year, the company’s Chief Executive stated that the firm will pay around $500 million on in-app commissions this year. Assuming that this number is spread evenly per quarter, it would represent around 66% of the firm’s cost of revenue during the six months ended on 30 June.

Even though there is no data in regards to how much of the firm’s revenues come from where, if we assume that only 30% of in-app purchases come from the Play Store, this 50% reduction in commissions will result in a 10% reduction in the firm’s cost of revenue.

As a result, Match’s group gross margin could jump by at least 150 to 300 basis points in the firm’s gross margins and the same would apply to its operating margins. As a result, the firm would add a total of around $111 million to its operating results in 2022 resulting in a 15% to 20% jump compared to this year’s forecasted figure.

It seems that yesterday’s jump in the stock price already incorporated most of the upside that could come from this reduction in Google’s fees. However, since we don’t have the actual number on how much the company will save as a result of this modification in the pricing structure it remains to be seen if the market’s adjustment was accurate.

Even though the technical break I highlighted above gives us an enlarged mid-term target for the stock, the fundamentals of the company have not improved to an extent that justifies such a target.

Therefore, the short-term outlook for Match is mildly bullish but the mid-term to long-term outlook remains neutral as the firm’s trading multiples are quite high – EV/EBITDA standing at 62 compared to an average of 30 for companies within the same sector.

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