- Paying users in decline
- Lack of innovation
Over a fifth of 18 to 29-year-olds in the US met their romantic partner online. This cultural phenomenon can be traced back to an invention that burst onto the scene in 2012: Tinder. The swipe-based app revolutionised dating, and its parent company Match Group (US:MTCH) – which also owns the likes of Hinge and OkCupid – now has 15mn paying customers and a 50 per cent share of the global market.
Scale is crucial in an industry that relies on network effects – but it is just part of Match Group’s allure. Adjusted operating margins hover around 30 per cent, free cash flow represents about a fifth of revenue, and capital expenditure is minimal at around 1 to 2 per cent of sales.
And yet shares in Match Group have fallen by 68 per cent since its IPO in the summer of 2020. Smaller rival Bumble (US:BMBL) has had an equally torrid time, with its shares down 85 per cent versus its 2021 listing. While the market historically valued Match Group at 34 times its forward earnings, this multiple has since tumbled to just 14 times.
Growth is the key concern. Although revenue is still climbing at Match Group, paying users are in decline, dipping by 6 per cent in the first quarter of 2024 compared with Q4. Tinder is under particular pressure, but growth at Hinge has also slowed significantly, and the group as a whole has lowered its outlook for 2024. Across the industry, monthly app downloads are falling, despite higher advertising spending.
Some analysts have blamed this on market saturation and the cannibalistic effect of successful match-making. Hinge’s tagline of “designed to be deleted” is unlikely to set many investors' hearts aflutter. The logic behind this is a bit wobbly, however. According to analysis by Morgan Stanley, around 70 per cent of US singles looking for relationships do not currently use online dating. Growth opportunities haven’t dried up, but Morgan Stanley analyst Nathan Feather said the problem was "quality of product", not saturation.
Image problem
The real issue seems to be reputation. Despite a big marketing push, Tinder is still known primarily as a hook-up app and is struggling to attract female users. It acknowledged this in its latest results, saying it will “dramatically improve profile quality and user trust, particularly among women” by requiring a picture of every user's face. It also recently launched a 'share my date' safety feature and is using artificial intelligence (AI) to vet photographs. It faces an uphill battle, though: over 65 per cent of female users on dating apps have been harassed, according to US think tank Pew Research.
Gen Z, those aged in their early to mid-20s, is also proving hard to win over. According to analysts at investment bank Raymond James, “fast-paced swipe-based mechanics find less resonance” with younger daters, particularly in the aftermath of multiple lockdowns.
“A resurgence for in-person meet-ups including speed dating, run clubs, and other social experiments have been more prevalent since the end of the pandemic, which are likely a direct response to the discontent individuals currently feel with dating apps,” the analysts said.
This discontent has sparked a wave of activity within the industry. Bumble, which used to require female users to make the first move, is on the brink of a major relaunch under a new chief executive. The app will no longer require women to actively initiate conversations, and will offer pre-set icebreakers to “lighten the load”.
Tinder is also launching new features, including swipe up and down and a revamped explore page. Many analysts are sceptical about whether this is radical enough, however, citing a persistent lack of innovation and the rapidly evolving needs of Gen Z.
Money worries
Dating apps face another slippery issue: monetisation. Match Group has a 'freemium' model and makes the majority of its revenue from subscriptions. A tiny portion comes from advertising. Tighter household budgeting means sales have been under pressure and more users have opted for the basic, free tier.
Emotions also play a part, however. Many online daters are unwilling to pay for matchmaking services because doing so explicitly commercialises something that should be organic. For some, knowledge that a potential partner does pay a subscription is enough to put them off. Dating is curiously resistant to monetisation, therefore, and companies must balance revenue generation and the impression of romance.
Making greater use of advertising is one way to strike this balance. One analyst said platforms should complement subscriptions with advertising, much like the video streaming industry, and leverage the data they hold on clients. Bumble is tentatively testing this in its “friends” app, but elsewhere progress has been minimal.
Activist interest – Elliott Investment Management took a stake in Match Group at the start of the year – suggests disruption could be around the corner. Meanwhile, the growth opportunities remain attractive, particularly when international expansion is taken into account.
Like analysts at Raymond James, therefore, we don’t believe the apps are “headed for the dustbin of history”. However, what online dating will look like in the future – and which company will dominate the market – is still a mystery. Love may not be in the air, but change certainly is.
