Hinge Could be Big for Match Group (NASDAQ: MTCH)

Tinder is the No.1 most downloaded and highest-grossing dating app in the world. It is responsible for more than half of Match Group’sNASDAQ: MTCH revenue, and roughly 90% of its revenue growth over the last five years. The app shows no signs of slowing down, and even if the rest of Match Group’s portfolio was expected to stay flat, Tinder could help the company grow into its lofty valuation – 13.8x forward sales and nearly 60x forward earnings – on its own.

The fact that Match Group also owns Hinge, however, gives Match shares a lot of upside.

Hinge’s Downloads and ARPU Are Both Growing Quickly

In Q3 2020, Hinge downloads surged by 82% yoy and average revenue per user (ARPU) more than doubled compared to the year-ago period. The ARPU growth was an acceleration over Q2 2020, when Hinge’s ARPU grew by 63% yoy. Combined, the ARPU growth and subscriber growth resulted in direct revenue more than tripling yoy in Q3.

Hinge has less than 10 million global downloads, or less than 10% of Tinder’s 100 million-plus. Match didn’t disclose Hinge’s paid subs or revenue in its Q3 report, but those metrics are likely even further off Tinder’s. Match expects Tinder to record $1.4 billion in revenue for full-year 2020 and the app has 6.6 million paid subs.

Hinge’s Size = Opportunity

 A dating app’s growth outlook is linked to its size. Too big and it may struggle to find new customers and ways to boost ARPU. Too small and there may not be enough users to create a powerful network effect.

Hinge seems to be in a good place right now. It is big enough to give singles enough choice in many American cities, but not so big where most potential customers have already signed up.

Match has done an incredible job monetizing Tinder and is applying similar tactics with Hinge. The app launched a couple of features last year – “Roses” which is comparable to the Tinder Super Like and Standouts, a somewhat unique feature.

On the Q3 earnings call, Match CEO Shar Dubey talked about the new features, saying, “Both of these have contributed to ARPU. But we're still early and have room to move both levers, which will be the focus for 2021. So the team is currently focused on both user growth and monetization across both of these levers in English-speaking markets, and I think there's still a runway in these markets. And then at some point, we will turn our focus to international markets.”

That last part is key. Hinge hasn’t even turned its focus to international markets yet. This app has a big runway in the US in terms of downloads and ARPU, and it hasn’t even gotten started internationally.

Will Hinge Cannibalize Tinder if It Keeps Growing?

Probably not, and here’s why:

Tinder is meant for facilitating short-term relationships, while Hinge targets people that are looking for long-term relationships. Tinder is popular among a lot of age groups, but early to mid-20s singles make up a large portion of the app’s user base. Whereas Hinge’s user base tends to skew towards older millennials.

That’s not a hard-and-fast rule, but generally speaking, these apps won’t be getting in each other’s way.

For people that do switch, the decision will likely be influenced by what they want at that moment. In those cases, a move from, say, Tinder to Hinge, would be preferable to a move from Tinder to an app that is not under the Match umbrella – but that better serves the user’s current needs.

How Should You Play Match Group?

 MTCH has been slowly climbing since October, consistently setting all-time highs, but rarely moving more than a few points – up or down.

The 50-day moving average just caught up with Match Group. On Friday, shares got strong support at the 50-day, and then on Tuesday and Wednesday, shares held the line.

This looks like a good opportunity to get into a potential long-term winner – a company that has not one, but two fast-growing apps under its ownership.