Match Group Plans Senior Notes Offering Due to Mature in 2029

Match Group MTCH announces pricing of upsized senior notes worth $350 million. The principal amount of the notes is scheduled to mature by 2029 and will carry an interest rate of 5.625%.

The offering of the notes will be concluded on Feb 15, 2019, upon fulfillment of customary closing conditions. The offering reflects the company’s intention to repay outstanding amount under its revolving credit facility.

The notes have been offered to qualified institutional buyers under Rule 144A, which is exempted from registration requirements under the United States Securities Act of 1933. We believe these notes will provide financial flexibility to the company and fuel long-term growth.

Stock Performance & Cash Position

Match Group’s stock has gained 45.8% in a year, against the industry's decline of 16.3%.

We believe that the senior notes offering will lower Match Group’s cost of capital, consequently strengthening balance sheet and supporting growth initiatives.

Match Group exited the fourth quarter with cash and cash equivalent balance of $186.9 million, down from $403 million reported in the previous quarter.  Cash flow from operations was $603.5 million in the nine months ended Dec 31, 2018. Free cash flow came in at almost $572.5 million.

Bottom Line

Match Grouphas an excellent earnings surprise history as the stock has surpassed the Zacks Consensus Estimate in the prior four quarters, recording average positive surprise being 11.4%. We expect the company to record earnings growth of 9.9% and 22.4% in 2019 and 2020, respectively.

The company is the world’s foremost provider of dating products and operates a portfolio of more than 45 brands. It enjoys a first mover’s advantage in the online dating market. The company's increase in its average subscriber base, driven primarily by solid contribution from Tinder is a key catalyst. Sturdy synergies from Meetic, Match and PlentyOfFish bode well for the company. Match Group had rolled out a Tinder Gold subscription package, which has driven incremental ARPU and subscriber growth.

Notably, in the fourth quarter, Tinder average subscribers increased 1.2 million year over year and came in at 4.3 million. Sequentially, the same increased 233,000. ARPU grew 12% year over year, primarily on the back of higher number of Gold subscribers and record à la carte revenues.

However, weaker-than-expected advertising revenue growth trends might dent the company’s financial performance. Further, higher investments in Tinder, higher-than-expected data costs and professional fees might limit margin expansion.

Zacks Rank and Stocks to Consider

Match Group carries a Zacks Rank #3 (Hold)

Some better-ranked stocks in the broader technology sector are Symantec Corporation SYMC, salesforce.com, inc. CRM and Twilio Inc. TWLO, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Symantec, salesforce and Twilio have a long-term earnings growth rate of 7.9%, 24.2% and 9%, respectively.

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