Is It Time For Facebook To Swipe Right On Match Group?

Facebook’s (NASDAQ:FB) history of user privacy issues indicate that the company would do better in the dating segment through an acquisition (in this case that of the Match Group) instead of building its own dating feature/app. Trefis details why Facebook could potentially acquire Match Group as well as how much the social media giant can pay to acquire the company that owns Tinder, OkCupid and PlentyOfFish, among other popular dating apps. Our estimate is based on Match Group’s standalone value as well as its value as a part of the combined entity with Facebook. You can modify any of the key drivers to visualize the impact of changes on the potential acquisition price. Additionally, you can see more Trefis technology company data here.

Why A Facebook – Match Group Deal Could Be On The Cards

Facebook has been keen on the online dating space

• In 2018, Facebook announced that it was about to launch its dating feature.
• Facebook’s announcement led to a decline in stock Match Group. Tinder is the leading dating app globally in terms of number of users, and accounts for a majority of Match Group’s users by a significant margin.

Despite the huge growth potential, Facebook will face growth hurdles in the segment

• Although dating is potentially a $12 billion market (Facebook’s revenues are in excess of $50 billion), the engagement potential that romantic conversations bring about can be very valuable for Facebook’s platform.
• Facebook has the benefit of a massive user base, and even a small percentage of its users adopting a new dating feature could catapult it to the lead position in this segment
• However, the perception of Facebook’s treatment of user privacy will act as a major deterrent for potential users
• In the backdrop of the Cambridge Analytica scandal, Facebook has come under fire for letting third parties misuse user information.

Facebook is no stranger to growing by acquisition, and Match Group looks like a great fit

• Given Facebook’s positioning as a marketing platform, it was no surprise that the company paid top dollar for WhatsApp in 2014 despite having its own messenger platform.
• We think Tinder represents an asset similar in quality and potential to WhatsApp in 2014.
• Match Group’s average revenue per user (ARPU) and enterprise value per user (as suggested by the market cap) are an order of magnitude greater than that of Facebook, further providing a compelling logic for the potential acquisition.

A Quick Look at Key Operating Metrics For Match Group vs. Facebook

As of 2018, the following is how Match Group’s Key Metrics compared with Facebook:

• User base: 7.9 million for Match Group vs 2.25 billion for Facebook
• Average Revenue per Users (ARPU): $220 for Match Group vs $24.8 for Facebook
• Revenues: $1.7 billion for Match Group vs $55.8 billion for Facebook
• Adj EBITDA: $654 million for Match Group vs $34 billion for Facebook
• EBITDA/user: $83 for Match Group vs $15 for Facebook

Valuations: Standalone and that of the combined entity

• For Match Group, we expect EV to be 9.2x the 2020 revenues of $2.5 billion, or an EV/user figure of roughly $1,900. This translates into an implied enterprise value (EV) of $22.8 billion for the Match Group, and also represents an EV/EBITDA of 25.5x for the company.
• For Facebook, we expect EV to be 7.2x the 2020 revenues of $76.6 billion, which works out to an EV/user figure of roughly $220. This translates into an implied enterprise value (EV) of $551 billion for Facebook, and also represents an EV/EBITDA of 11.2x for the company.
• Based on our revenue and EBITDA forecasts for Match Group and Facebook, and our estimates for potential gains as a combined entity, we believe that there Facebook can profitably acquire Match Group for a figure that is more than 2x Match Group’s implied enterprise value.