IAC’s Dating Sites Continue Growth, Will They Be Spun-off Soon?

IAC’s dating division has continued to perform well, despite the company posting a 33% profit decline in their Q1 2014 results.

Match Group saw a 9.5% increase in revenue compared to the year before, up to $211.2m.

This revenue growth was driven by more paid subscribers, who increased 10% to 3.5m.

Match Group saw a 7% subscriber increase in North America, and a 12% growth internationally.

IAC’s overall decline in revenue was due to the weakness of its media segment, which decreased 19% to $36.4m, after the company sold Newsweek last year.

Their search & application sites – such as Ask.com – which performed badly in the previous quarter, had a strong period, with revenue up 8%, and page views increasing 16% to over 9bn.

Despite the inconsistencies of these other segments, the constant that remains profitable is their dating division, which is widely expected to be spun-off by IAC.

Yesterday, Jay M. Taylor wrote an article on SeekingAlpha about the investment opportunities with IAC, prefiguring this anticipated Match Group spin-off.

Taylor thinks Tinder is hugely under-appreciated by the market, even though a monetisation strategy for the app has not yet been decided.

IAC have successfully spun-off Expedia, Trip Advisor and Live Nation in the past, and Taylor sees a Match Group spin-off as certain, considering the executive changes made last December.

This involved putting former IAC CEO Gregory Blatt at the head of the dating segment, while also giving him a huge stake in its success, by way of considerable stock options.

Taylor said:

“By putting his top deputy in charge of the Match group and handing him some of IAC’s most successful brands, it seems obvious that Barry Diller is preparing for yet another IAC spinoff. 

“Shares jumped 14% when the reorganization was announced so I’m guessing the market knew exactly what IAC was up to.”

Packed up in this is the much-debated valuation, and monetisation possibilities, of Tinder, following its rumoured then swiftly quashed $5bn valuation earlier this month.

This situation arose after Bloomberg reported that IAC bought back 10% of Tinder from venture capitalist Chamath Palihapitiya for $500m, which would have put Tinder’s total worth at $5bn.

Sam Yagan, CEO of Match, dismissed this valuation, saying to Forbes: “I can confirm on the record that we did a transaction with Chamath, but this valuation is nowhere near the truth.”

The app’s value centres on whether it can be successfully mined for revenue, with advertising seeming the most likely option – in favour of subscription, or paid for premium features.

Last week Facebook launched Nearby Friends, a mobile feature which lets users find friends who are close by.

Josh Constine reported in TechCrunch that Facebook confirmed they would use Location History collected from the app for location-based targeted ads “in the future”.

This would create the possibility of highly-tailored ads appearing on a user’s News Feed, for shops, restaurants and bars in their immediate vicinity.

Facebook’s mass of personal user data also means these ads could be targeted specifically for each user’s feed.

This is an area that dating apps have begun to move into – Cupid and iHookup recently partnered with Poynt, an app which monetises local businesses by offering deals and nearby date locations.

This would fit with Tinder’s own location-based matching, perhaps by showing a date deal or venue to couples matched on the app.

Tinder also requires a Facebook login, and if they could pull more personal data from the social network, this could increase the usefulness of ads, and perhaps make their introduction more palatable for longterm users.

As Taylor says, this location-based marketing would also “significantly overlap with other IAC brands, including Urbanspoon and CityGrid.”

He wrote: “What if Tinder sold its front screen to advertisers the same way Google’s YouTube sells its front page banner space? And added an additional location-targeted advertisement for every match made?

“$10,000 a day to buy the home screen and $0.10 each for a targeted ad on the match screen (assuming a fixed 10 million matches a day) would result in $368.65 million in annual revenue.

“I think these numbers are entirely reasonable and give some sense for what Tinder could pull in with successful monetization.”

Taylor is in the camp who believe Tinder to be extremely valuable, not just because of its user base, but its remarkable user engagement – commenting that one of Facebook’s main attractions to WhatsApp was that it was the only app which had a higher engagement than Facebook.

IAC could well be waiting to lock down their Tinder monetisation strategy, and see a steadying of their media and search segments, before undocking their dating division.

But with Match Group continuing to perform well in consecutive quarters, it is surely only a matter of time before this happens, and if they choose a monetisation policy for Tinder which does not cause a mass exodus of disgruntled users, the potential for IAC is huge.