UBS Upgrades Match Group: Despite Guidance Miss, Long-Term Narrative Remains Intact

Match Group Inc MTCH reported its third-quarter earnings in-line with Street expectations and announced disappointing guidance for the next quarter.

Following the stock’s recent sell-off, the current valuation seems compelling, and the spin-off of IAC/InterActiveCorp IAC expected in the first half of 2020 could act as a catalyst, according to UBS.

The Analyst

UBS analyst Eric Sheridan upgraded Match Group from Neutral to Buy, while reducing the price target from $95 to $88.

The Thesis

Match Group’s stock, which had already been under pressure since August due to legal proceedings and the September launch of a dating app by Facebook, Inc. FB, declined further after the company announced its fourth-quarter outlook short of expectations, Sheridan said in the upgrade note.

He added, however, that Match Group’s long-term fundamental drivers remained intact. These drivers include Tinder’s growth, the efficient allocation of marketing budget across brands to generate operating leverage and outsized returns and management’s impressive ability to allocate capital across new brands, product launches and potential mergers and acquisitions.

The company’s third-quarter results highlighted both positives and concerns, Sheridan said. While strength in Tinder’s engagement trends continued, the net adds were below expectations, impacted by recent iOS changes.

The analyst reduced the fourth-quarter 2019 estimates for revenues from $562 million to $554 million and for adjusted EBITDA from $230 million to $208 million. The earnings estimate for the quarter was lowered from 57 cents to 49 cents.