Seeking Alpha analyst Mike Berner has shifted positions on Match Group following earnings calls and the success of Tinder Gold.
In October, Berner recommended holding off from buying shares in the dating leader.
“(…) the anticipated growth rate does not justify the price given the risk inherent to new technologies,” he argued.
Since that analysis, Match stock has increased 60%.
Berner now feels that Match is set to grow even further, and advises investors that they have not ‘missed the boat’ by only just realising the potential.
He cites research and personal experience that suggests Match Group products are a good way to meet new people as influencing his decision.
“In 2013, a mere 10 percent of people aged 18-24 had used online dating. That number has more than tripled over the last few years,” he notes.
He also agrees with fellow analyst Samuel Leather, who suggests the ‘network effect’ is key to predicting future Match Group success.
The network effect is the phenomenon of an app’s product becoming better to use the more people use it.
This presents a major barrier to entry for competitors, who will have a worse product experience despite creating a potentially better product.
“This is the reason why upstarts have found it difficult to dethrone 1990s stalwarts such as Craigslist, despite the latter’s severely outdated user interface,” says Berner.
Tinder, with its increasingly popular subscription services, also has the potential to make compound profits by raising prices a little above the rate of inflation over time.
The conclusion reads: “I remain wary of the tech sector’s valuation, but Match Group’s stock price is not in fantasyland. This is an actual business that rakes in a lot of money, and it ought to be treated as such.
“With a sticky business model, long runway for growth, and high return on investment, this is not a company to be dismissed lightly.”
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