Aaron Gabin

Obex Capital Research

Equity Bottom-Up

<ul>
<li>Match is down 52% over the past 6 months and at $71, Match trades at a 5% FCF yield, ~17x Fwd EBITDA, for ~20% growth / ~35% EBITDA margin</li>
<li>Covid restrictions lifted in Japan (2nd biggest market) should be tailwind for 2H22</li>
<li>New CEO from Zynga brings unique mobile monetization skillset ideally suited for coming Tinder Coins summer launch.</li>
</ul>

<p>This note is a followup to our recent short call on <a href="https://www.smartkarma.com/entities/match-group-inc" target="_blank" data-smartkarma-citation="entities:25903:1" rel="noopener">Match Group Inc (MTCH US)</a> ahead of 4Q19’s earnings. The quarter was highly supportive of our short thesis. We would stay short through 2Q. The key takeaway is we believe the <a href="https://www.smartkarma.com/entities/apple-inc" target="_blank" data-smartkarma-citation="entities:666:1" rel="noopener">Apple Inc (AAPL US)</a>  iOS changes will not stop causing havoc to Tinder’s net adds once everyone upgrades to iOS 13 as management predicts, but will have a rolling impact throughout the year until the subscription termination changes are lapped.</p><div class="content-highlight"><p>Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</p></div>

<p>Apple's quasi loss in the Epic lawsuit regarding app store take rates makes us all the more bullish on one of our favorite longs...Match Group. And also more bullish on Roblox (another long recommendation) and ATVI (less a beneficiary, but still a good entry point. We think Spotify and Netflix's benefits are overstated. Spotify has run too much on the news, and we think its potentially another good short entry point.</p>

<p>Post 3Q20, we closed out our note saying, “We think COVID will result in more headwinds then tailwinds, which will provide a headwind to guidance, and what we think will be an entry point come February when 2021 guidance is given. By then we will be 3 months closer to vaccines and 3 months closer to last years’ Q2 which was horrendous due to the initial restrictions and gives a great setup for an explosive 2Q21 quarter.”</p><p>Match  pulled back 8% on earnings and is down 11% in two weeks. At 36x forward EV/EBITDA, we are at the same valuation Match was after 2Q and 3Q…except we are now one quarter away from entering a period of accelerating EBITDA growth. Guidance does not contemplate a full return to “normal” by the back half of 2021…which means guidance is likely too conservative. Entry points on one of the great business models in TMT are few and far between. Its time to buy Match.</p><div class="content-highlight"><p>Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</p></div>

<p>We wanted to follow up on Match given we advocated it from the short side early in the year, and closed the short in May before the spinout. Is now the time to re-engage?</p><div class="content-highlight"><p>Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</p></div>

United States

Match Group, Inc. owns and operates subscription-based online dating websites and applications. The Company offers online dating and matchmaking services. Match Group serves customers worldwide.

Match Group Inc - MTCH US

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