Activist Elliott spots an opportunity to restore growth at Match. Here’s what may happen next

Enterprise: Match Group gives relationship merchandise worldwide. Their portfolio of manufacturers consists of Tinder, Match, The League, Azar, Meetic, OkCupid, Hinge, Pairs, Loads Of Fish and Hakuna, in addition to numerous different manufacturers. Their providers can be found in over 40 languages to customers all around the world.

Inventory Market Worth: $10.02B ($36.88 per share)

Proportion Possession:  ~9.5%

Common Price: n/a

Activist Commentary: Elliott is a really profitable and astute activist investor. The agency’s workforce consists of analysts from main tech non-public fairness corporations, engineers, working companions – former know-how CEOs and COOs. When evaluating an funding, the agency additionally hires specialty and normal administration consultants, professional price analysts and business specialists. The agency typically watches corporations for a few years earlier than investing and has an intensive steady of spectacular board candidates. Elliott has traditionally centered on strategic activism within the know-how sector and has been very profitable with that technique. Nonetheless, over the previous a number of years its activism group has grown and advanced, and the agency has been doing much more longer-term activism and creating worth from a board degree at a a lot bigger breadth of corporations.

Match Group is by far the worldwide chief in on-line relationship apps with over 45 manufacturers, essentially the most notable of that are Tinder and Hinge. Tinder is essentially the most downloaded relationship app on the earth and accounts for over half of the corporate’s income at roughly $1.9 billion and has over 50% earnings earlier than curiosity, taxes, depreciation and amortization margins, however lackluster development. Hinge accounts for $400 million of the corporate’s income however has been rising at over 100% per 12 months. It is a market-leading firm with an incredible monetary profile – rising high line, excessive EBITDA margins and asset mild producing income by a subscription mannequin. Nonetheless, their inventory worth efficiency in comparison with each friends and the broader market has been abysmal, with the inventory down over 60% because the firm’s separation from IAC in July 2020.

The chance right here is to get development again up – it has gone from a 35% compound annual development price to excessive single digits – and to get margins properly above 40% from their present degree at 36%. The primary drawback right here is oversight, primarily within the type of administration turnover. Match Group, the holding firm, has had 4 CEOs in six years. Tinder, the most important enterprise, has had six CEOs in eight years. With the median tenure of a Tinder CEO at one 12 months, it makes it practically not possible to implement a long-term strategic plan. Furthermore, the corporate has additionally achieved some unhealthy strategic offers, together with its June 2021 acquisition of Hyperconnect on the high of the market in a deal valued at $1.73 billion, which has already incurred $270 million of impairment prices. So traders have many doubts concerning the firm, together with the next: Is that this the appropriate management workforce? Is Match a development or worth firm? Is Tinder a melting ice dice?

The very first thing that must be achieved is getting the appropriate CEO at Tinder to set a decisive long-term imaginative and prescient for the corporate. Shortly after Elliott’s place was introduced, the corporate named Faye Iosotaluno, who has been Tinder’s chief working officer since August 2022, as CEO of Tinder, ending an almost two-year emptiness the place the Match CEO additionally acted because the Tinder CEO. As soon as the appropriate chief is on the helm of Tinder, a margin restoration ought to require not more than fundamental blocking and tackling, notably because the firm has very steady and competent CFO in Gary Swidler who has been there for 8 1/2 years. Subsequent, the corporate can regain its robust development with extra investing in sure demographics or monetization alternatives round pricing and bundling. It is a lot just like the scenario Elliott noticed at Pinterest – declining consumer base (like Tinder) and monetization alternatives to pursue. Elliott introduced its Pinterest funding in July 2022, went on the board in December 2022 and has had a 113% return there versus 16% for the Russell 2000.

We might anticipate Elliott would likewise desire a seat on the board right here. Primarily based on the agency’s expertise and historical past, the board and shareholders ought to welcome them. In 2023, activists have had some success in 96% of their campaigns, partially as a result of they aren’t overreaching and as an alternative are available with cheap asks. That’s the case right here. If Elliott asks for a board seat, we might anticipate the corporate to relatively rapidly accede. We might be shocked if this went to a proxy battle. Nonetheless, if it did, it will nearly be a foregone conclusion that Elliott receives board illustration, given the agency’s monitor document, the corporate’s efficiency, the staggered board and the common poll.

Elliott reportedly has an approximate $1 billion place in Match, equating to roughly 9.5%, which seemingly features a materials amount of money settled derivatives that the agency doesn’t embody as helpful possession underneath 13D guidelines.

Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.