There’s an old marketing adage that the best way to make money is through health, wealth or romance — and it’s proving as true in the internet age as it was on Madison Avenue.

While retail sales stumble and the economy inches along, people will always pay for advice and services to make them healthier, wealthier and to find that one true love.

The first large-scale computer dating system was created nearly 60 years ago, but the online dating industry seems to have found its sweet spot in millennials making it the best stock to invest in right now. The share of 18- to 24-year olds that have gone online to find love has tripled since 2013. Nearly a third of the group has used online dating, almost twice the proportion in the general population. 

The addressable market of singles with internet access tops 500 million in North America and Western Europe alone, and is expected to grow to 672 million by 2019. While buyers in most sectors remain price conscious more than seven years after the Great Recession, dating sites are able to charge premium subscriptions up to $60 per month. 

#-ad_banner-#One company is the undisputed leader in a still highly fragmented industry. It recently spun off from its parent to focus on dominating the group through its reach and position. Shares are up 20% since a stellar first quarter, but could have a lot of room left to run.

One Company Emerges From A Fragmented Market
Match Group (Nasdaq: MTCH) spun off from parent company IAC/InterActiveCorp (Nasdaq: IAC) last November to better focus on its core market. The company is actually 45 branded sites including powerhouse brands like Match, OKCupid and Tinder. Websites are available in 38 languages and 190 countries with 59 million MAU and 4.7 million paid members. 

According to IBIS World, Match controls a quarter of all online dating services market share, more than twice its next largest competitor eHarmony (11.9%) and no other company holds more than five percent of the market. That market control, along with $150 million in balance sheet cash and more than $200 million in annual free cash flow could help Match dominate the growing market.

Shares surged on May 3 when the company reported 21% annual growth in revenue to $285 million in the first quarter, beating the highest analyst’s estimate, on strong growth on the Tinder app. Tinder saw its paid membership more than triple over the past year from 304 million in Q1 2015 and is the #1 grossing app in 74 countries. More than a dating app, Tinder is becoming a discovery tool for social connections and should continue to be a huge revenue generator for the company.

Shares trade for $77 per monthly active user (MAU), well over the $34 per user valuation on LinkedIn (NYSE: LNKD) but still less than half the $193 per user valuation for shares of Facebook (Nasdaq: FB). While the matchmaking group may only count 59 million MAUs compared to hundreds of millions on the social networking sites, Match monetizes those users better than anyone. Match booked $17.29 per MAU in 2015, well above the $11.98 booked by Facebook and 130% more than either LinkedIn or Twitter (NYSE: TWTR). 

Advertising revenue could present a major upside for the company, which reported using just 2% of its ad space in the IPO filing. Tinder added a head of advertising last quarter and is focusing on driving revenue through the unused opportunity.

The company also books just under 9% of revenue from non-dating sites and services on Princeton Review and Tutor.com, both reporting relatively flat growth over the last year. The non-dating assets offer the potential for a future sale or spinoff as they really don’t fit with the rest of core assets. 

Match is relatively cheap compared to the other social sites on a price-earnings basis, and could continue to rally on its superior monetization and dominance of the dating segment. Shares trade for just 18.2 times 2016 expected earnings versus multiples of 37.3 times for LinkedIn and 33.0 times for Facebook. A price target of $18.25 per share puts the stock at 25 times 2016 earnings and an enterprise value of $92 per MAU, which would still be half the user valuation on shares of Facebook.

Risks To Consider: Shares have come off their post-earnings release run and may have further to fall until further growth confirms the upward trend. 

Action To Take: Take advantage of the recent weakness in Match Group after its post-earnings surge to positing in the leader of online love and benefit from its market dominance.

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