Match Group: Starboard Enters at 6.6% and Sees Potential to Raise the EBITDA Margin by 400 Basis Points to 40%. Is This the Turning Point for the Share Price?
Starboard Value LP acquires a 6.6% stake in Match Group. The activist investor wants to ensure more growth, a higher margin and higher dividends! The EBITDA margin could be raised from 36.1% to 40% by cutting costs and consolidating the technology platform. Match Group is undervalued! There was nothing to be gained on the long side in the shares of dating app providers in recent weeks. They refused to follow the upward trend in US technology stocks. Apparently, competitive pressure in the sector is intensifying. Match Group (MTCH), one...
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- Starboard Value LP acquires a 6.6% stake in Match Group. The activist investor wants to ensure more growth, a higher margin and higher dividends!
- The EBITDA margin could be raised from 36.1% to 40% by cutting costs and consolidating the technology platform. Match Group is undervalued!
There was nothing to be gained on the long side in the shares of dating app providers in recent weeks. They refused to follow the upward trend in US technology stocks. Apparently, competitive pressure in the sector is intensifying. Match Group (MTCH), one of the largest providers with its Tinder app, grew by only 9% to $859.7m in Q1 and increased EPS by 5% to $0.44. However, Citi placed the stock on its "Negative Catalyst Watch" this week ahead of the figures and Morgan Stanley also expects the 2024 revenue forecast to be lowered.
Nevertheless, the share should now be gaining momentum as Starboard Value LP has bought a 6.6% stake, following Elliott at the beginning of the year. The activist investor is aiming to expand growth, increase margins and return more capital to shareholders. Starboard Value LP explains this in a 5-page letter. First of all: Starboard Value LP invests in undervalued companies and wants to turn the situation around by actively working with management.
Match Group is seen as the market leader with 15 million paying customers with a significant opportunity for operational improvements that could be realized, especially in the event of a delisting. The Match Group management must weigh up the options here, so that indirectly a sale of the company should also be considered. However, the main aim should be to achieve stronger growth with the two leading dating apps Tinder (10 million paying customers and $2 billion in revenue) and Hinge by improving Tinder\'s product offering, internationalizing Hinge and boosting growth. Costs should be reduced. Consolidating the technology platform could save $60 million.
Starboard Value LP assumes that this could increase the adjusted EBITDA margin from 36.1% to 40%. In 2019, the Match Group achieved 38%. In addition, a large share buyback program of at least 75% of free cash flow is proposed. With a value of $1 billion per year, $750 million could be spent on share buybacks. This is also intended to reduce the 45% discount to a technology peer group defined by Starboard Value LP with Bumble, Informatica, Akamai and Zoom. In principle, margin increases are the best catalyst for a share price. Match Group should now be put under pressure to improve profitability. This makes the share interesting after the massive fall in the share price. It could be on the verge of a comeback!
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