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Sector: Communication Services Industry: Interactive Media & Services
Krause Fund Research Spring 2020 Recommendation: BUY Research Analysts Nicholas A. Faltz [email protected]
Joshua V. Nichols [email protected]
Company Description Match Group, Inc. (NASDAQ: MTCH) engages in the provision of dating products worldwide. It operates a portfolio of brands including Tinder, Match, Meetic, OkCupid, Hinge, Pairs, PlentyOfFish, and OurTime, as well as various other brands. Match Group, Inc. offers its dating products through mobile applications, and desktop and mobile-web in approximately 40 languages. Through its portfolio of brands, the company provides tailored products to meet the varying demands of users. Match Group, Inc. was founded on February 12, 2009 and is headquartered in Dallas, Texas. Match Group, Inc. is a subsidiary of IAC/InterActiveCorp.
Match Group, Inc.
Earnings Estimates (EPS) 2019 2020E 2021E 2022E 2023E 2024E
$1.91 $1.83 $2.03 $2.30 $2.51 $2.74
April 21, 2020
Stock Price Performance vs. S&P 500 (YTD)
Current Price $80 Target Price $145 - $196
Price Data 52 Week High $95.32 52 Week Low $44.74 Relative Valuation $79.59 DCF/EP Intrinsic Value $171.85 Analyst Consensus 1yr TGT $82.88 Key Statistics Market Capitalization (B) $22.62 Shares Outstanding (M) 279.8 Beta Value 0.48 EPS (TTM) $1.91 P/E (TTM) 44.25 Dividend Yield (%) N/A Profitability Return on Assets (%) 22.06 Return on Equity (%) 167.03 Gross Margin (%) 74.30 Liquidity Current Ratio 1.62 Cash Ratio 1.12 Operating Cash Flow Ratio 1.58
We are suggesting a BUY recommendation for Match Group, Inc. (MTCH) considering their current position and the ability to capture a large amount of market share in a very young U.S. industry with tremendous growth potential. Match Group has positioned themselves as a strong player in the growing interactive media and services industry. Key Drivers:
• Market Presence: Match Group controls over a third of the online dating services market, while their closest competitor occupies just over 12%
• Tinder Success: Tinder is the key driver of Match’s success, allowing them enough capital to acquire other brands such as Hinge. Match Group’s aggressive approach has allowed them to develop a portfolio of brands, creating multiple streams of revenue and growth opportunities.
• Increasing Acceptance and Growth of Dating Products Globally: As more interconnected singles utilize online dating products and the stigma around dating continues to erode, Match can accelerate growth further through their International channels
Key Risks: • Government Regulation: The rapidly evolving
regulatory framework on privacy and data protection across jurisdictions is a primary issue for Match Group as regulatory practices change.
• COVID-19: Coronavirus has already had a significant impact on the economy and is leading the US into a recession. Bearish conditions could cause a significant decrease in growth and the number of subscriptions
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(Source: Yahoo Finance)
EXECUTIVE SUMMARY
As of April 17th, 2020, we recommend a BUY rating for Match Group, Inc. (NASDAQ: MTCH) for the University of Iowa Krause Fund portfolio. Match Group has experienced significant growth in recent years as the stigma of online dating transitions to a social norm. Additionally, the increasing number of mobile connections has allowed them to attract and obtain users around the world. Our recommendation stems from a variety of factors, specifically Match Group’s ability to capture and maintain market share within the dating services subsector. Match Group has had tremendous international success, as over half of their revenue is accomplished outside of the United States. Within the United States, they control over a third of the dating services market, while their closest competitor occupies just over 12%7. As the Communications sector continues to grow, we believe that Match Group’s market presence and ability to tailor products prove that the company would be a profitable addition to the Krause Fund. Our forecasts included in the report along with the provided model support our BUY rating. We believe that this rating is appropriate due to Match Group’s strong position and ability to perform during a period of economic uncertainty.
ECONOMIC OUTLOOK Real GDP Growth The United States’ GDP is an indication of economic health, measuring the value of all goods and services produced within the U.S. each year on an inflation adjusted basis. Thus, Real GDP is highly correlated with the performance of the 11 sectors within the S&P 500. An increase in GDP is significant as it helps to signal a healthy economy and ample spending on goods and services. Personal consumption expenditures accounts for 68 percent of total GDP, out of which services represent 45 percent and purchases of goods 23 percent.11 U.S. real GDP growth is a primary driver for Match Group as their business units are heavily reliant on consumer spending.
(Source: Bureau of Economic Analysis)
The United States’ real GDP increased by 2.3% in 2019, a slight drop from 2018’s 2.9% increase.12 The coronavirus outbreak has caused significant damage to the global economy, and the U.S. economy has the largest impact on global growth. While containing the virus continues to be the primary goal in this pandemic, stay-at-home orders and
government restrictions continue to suppress economic activity. The International Monetary Fund (IMF) expects U.S. GDP to contract by 5.9% for the full year. The IMF and similar reporting entities are giving revised estimates as a result of the COVID-19 outbreak.14 Deloitte Insights is betting heavy on the possibility of a COVID-19 recession, projecting an 8.3% decrease in GDP for 2020, with aggressive monetary and fiscal policy kickstarting economic recovery as disease cases diminish in late 2020 or early 2021.15 We expect revenue growth to decline as a result of economic uncertainty and social distancing measures. Match Group’s key business segments rely on human (social) interaction, but we anticipate spurs of growth throughout the year as Match begins to capitalize on the video functions of products. With limited travel and closing of nearly all non-essential businesses, Match Group has the potential to offset losses in advertising and promotions through an increase in the number of subscribers. Social distancing limits many aspects of life, and people may be more willing to try Match Group’s dating products if traditional social settings are not an option. United States Unemployment Unemployment is a key indicator of the overall labor market. The COVID-19 outbreak caused the U.S. unemployment rate to increase from 3.5% in February 2020 to 4.4% in March 2020.13 Due to its lagging nature, we anticipate unemployment continuing to rise in the short-term as many states have just recently shut down all non-essential businesses to further social distancing. Furthermore, over 22 million Americans have already filed for unemployment aid in the April 2020. These indications project a real unemployment rate of around 17%13. Due to the rising risk of unemployment in the U.S., we anticipate low levels of consumer spending could lead to a significant decline in advertisement spending. Consumer Confidence The Consumer Confidence Index (CCI) gauges the public’s confidence regarding the health of the U.S. economy. The Consumer Confidence Index aims to reflect the public’s collective outlook on future economic conditions. In the most recent survey, the CCI decreased from 132.6 in February to 120.0 in March; this is due to the recent outbreak of COVID-19 in the United States, the country responsible for large market volatility and the recent spike in unemployment claims.17 In the short-term, we anticipate a continuing decline in CCI due to the current emphasis on social distancing and “essential-only” businesses across the nation. The extension of the stay-at-home order is active in many states which can be detrimental to nearly all major industries in some shape or form. It is highly probable that COVID-19 will have a negative impact on Match Group’s business portfolio. In terms of ad-driven content, advertising makes up a small portion of Match Group’s revenue. We anticipate the company reducing advertisement expenses temporarily in response to the decline in consumer spending on goods and services. However, we expect CCI will return to familiar
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level once social distancing efforts begin to settle and non-essential businesses reopen to the public. Government Regulation The U.S. government continues to implement new policies and regulations that aim to resolve issues regarding privacy and data collection of confidential user information. This is an extremely pressing matter for Match Group as they receive, process, store, and transmit a significant amount of personal user and other confidential or sensitive information, including credit card information and member-to-member communications or message “threads”.2 The success of the company is heavily dependent on its ability to access, collect, and use personal data about users and subscribers. More recently, the state of California and the European Union (EU) enacted legislated that required internet companies to obtain user consent before the retrieval or processing of any data. The California Consumer Privacy Act requires companies to develop methods that enable consumers to submit data requests and respond to them. This act grants consumers a limited right to use companies over data breaches when security obligations are not met.18 The act also imposes large fines in certain situations as companies in this arena handle extremely large amounts of user information and data. Following the California Consumer Privacy Act, states including Nevada, Maine and Illinois have initiated similar laws. Many other states are considering similar implementation plans in 2020 or the following year, and there are no signs of a regulatory slowdown. These federal regulations pose a large threat for Match Group as they could limit the company’s ability to profit off user data. On an international level, data and privacy regulation is also very prominent. The EU’s General Data Protection Regulation requires companies to use full transparency when it comes to using private information. In other words, companies must post clear notices to users and require their full consent before collecting consumer data for marketing purposes.18 CAPITAL MARKETS OUTLOOK Due to the COVID-19 outbreak, our market outlook has changed significantly. Before the virus, the U.S. was leading the longest bull run in history. The U.S. is facing record low numbers which can be attributed to the outbreak of COVID-19. In the short term, we anticipate bearish market conditions for the communications sector. Our projection is based off our 6 month’s estimate of 3.5% real GDP contraction; the increasing rate of unemployment, lack of non-essential spending and reduced economic activity will continue to hold the market in bear territory for months to come. Each of these factors help to influence the sector as they have a direct impact on consumer spending. Consumers are less willing to spend their disposable income on unnecessary goods and services during a period of high uncertainty. This lack of economic activity poses a threat for Match Group’s short-term operations as their products are mainly considered to be discretionary goods. Therefore, we anticipate a negative outlook in the near term as consumers avoid purchasing
unnecessary goods and services. However, it is possible for certain companies within the communications sector More specifically, we anticipate a slight decrease in the number of active subscribers as a result. Our long-term estimates of real GDP contracting by 7% are based on consumer confidence, rising unemployment claims, and the reality of a market recession. This period of economic disparity decreases the level of consumer spending, resulting in a decrease in overall discretionary spending. This paints an unfavorable outlook for Match Group and the entire communications sector, and it is possible that Match Group’s revenue streams will suffer as a result of reduced discretionary spending. Despite the signs of a recession in the United States, it is important to use a situational analysis due to the unforeseen events. While we anticipate a bearish outlook, it is important to note that the communications sector outperforms the market. While our assumptions remain the same, it is possible that companies within the communications sector, especially Match Group, could experience spurs of growth during this bleak period. Video steaming and interactive media services has surged as a result of social distancing efforts. To sustain or improve future growth, Match Group must maintain its position in the market and capitalize on the products that attract or maintain consumers. COMPANY ANALYSIS Match Group’s fiscal year end is February 1st and the company reports earnings based on the ‘Tinder’ segment and the ‘Other Brands’ segment. The company’s revenue is further broken down into direct revenue (derived from a subscription model and other a la cart payments) and indirect revenue (derived primarily from online advertisements). Match Group operates their brands by employing a ‘freemium’ model, encouraging new subscribers to join by allowing consumers to try their products without having to purchase anything, creating a profile is free. As mentioned in the Q4’19 earnings call1 a major adjustment in Match’s business model is expected to take place in FY2020. Consumer preference is changing from the traditional subscription model to a “pay as you go”1 structure. Management hopes to drive revenue with this new business model by emphasizing their a la carte features available to users. A revenue decomposition based on geographical location as well as segmented business units can be seen in the below charts.
57.40%
42.60%
Segment Revenue Decomposition as a % of Total Revenue (2019)
Tinder Revenue Other Brands Revenue
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(Source: Match Grroup 10-K)2
Tinder Segment Tinder is the star of Match Group’s portfolio of online dating brands, responsible for over 57% of the company’s total revenue in FY2019.2 Tinder’s ability to capture market share in the online dating services industry has been the key to Match Group’s growth since Tinder’s inception in 2012. Since FY2015, Tinder’s direct revenue has grown at a CAGR of 123% during the period to $1.152B in 2019.1 Tinder’s growth to 5.89 million average subscribers has largely been contributed to to the millenial generation and their rapid adoption of the online dating platform.1 A subscriber is defined as a user who purchased a subscription to one of Match Group’s products. Tinder’s average subscribers increased 19% year over year from Q4’18 to Q4’19, indicating high levels of growth in both revenue and subscriber figures.1 Given Tinder’s rapid growth into a billion dollar business unit, we are optimistic about the continued growth in the future. We are projecting a 15% growth in Tinder’s revenue for 2020E to $1.324B. The Tinder brand is the biggest driver for Match Group’s total revenue and company management is heavily reinvesting into this business unit to ensure its success.1 Match Group management discussed during their Q4’19 earnings call a variety of new initiatives that the company has undergone regarding the Tinder segment, such as: trust, safety, and product innovation iniatives. Tinder has been listening to their user base and applying the required resources to retain current subscribers as well as adding new ones by addressing their needs. These forward looking iniatives and an adjustment to Tinder’s business model are reasons we believe Tinder will sustain a high level of growth in the future. Other Brands Segment Match Group’s portfolio of other brands takes advantage of the naturally segmented online dating services market. Consumer preference toward one’s dating life comes with a variety of demographic, geographic, and unique preferences that can be successfully served by allowing each brand a niche market. For example: OurTime is “the largest community of singles over 50 of any dating product in the US”.2 Match.com uses algorithmic formulas to match subscribers and emphasizes a more meaningful connection for those who are looking for a more serious relationship. By focusing each brand towards a desired niche, cannibalization can be minimized for desired company growth. Match is employing resources in their Other Brands segment towards emerging markets in the online dating services industry such as India and Eastern Europe. Management has stated that this is an important investment towards their long-term growth strategies. The collection of these Other Brands are responsible for 42.6% of Match Group’s dierct revenue.2 Given the forward-looking horizon for several of Match Group’s Other Brands, especially those in the emerging Asian markets where the social stigma of online dating just
started to become commonplace, we are anticipating a modest 5% growth rate in the near term for this business segment. North America & International Revenue Historically, most of of Match Group’s revenue came from their operations in North America. However, their International operations growth rates have outpaced their North American counterparts in the past few years. North American revenue comes from the United States and Canada, International revenue comes from all other countries of operations. The following chart includes the geographical break up of revenue for FY2019.
(Source:Factset3)
During 2019 the North America segment earned 49.93% of revenue for Match Group a decrease from 2018’s of 52.16%.2 The International operations are becoming increasingly more important for Match Group growing at 21.19% and 30.31% for 2019 and 2018, respectively.2 These results align with management’s goal of expanding internationally1, indicating that their growth initiatives are working. We are optimistic that the International operations can grow by 15% for 2020E while North American operations will grow by 8%. Cost Structure Match Group’s operating margin for 2019 was 31.62%.2 Match does not carry any inventory on their balance sheet, decreasing the variable cost portion of their operating expenses. As a result, Match has the ability to optimize their margins by efficiencies of scale within their SG&A fixed expenses. The operational functions of Match Group’s SBU’s are centralized, allowing for maximum efficiency and resource sharing across the platforms.2 We are forecasting that Match Group achieves some efficiencies of scale regarding their SG&A expenses increasing their operating margin initially, then slightly adjusting over the forecasted period for an operating margin of 33.74% in 2029CV. The graph below states Match Group’s historical and forecasted operating margins.
49.93%47.92%
2.15%
Geographical Revenue Decomposition as a % of Total Revenue (2019)
North America Direct RevenueInternational Direct RevenueIndirect Revenue
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(Source: Factset3)
The initial increase of operating margins at the beginning of the forecast period can largely be attributed to valuing cost of revenue by its historical average of 23.47% compared to 2019’s of 25.7%, thus decreasing expenses and increasing margins. This spike in the operating margin is offset by the forecasted value for income tax provision. Match paid taxes in 2019 at an effective rate of 4%. Provision for income taxes during the forecast period is valued according to Match Group’s 2019 marginal tax rate of 23.51%. Match Group’s growth is able to be sustained through their net income margin. Their net income margin for 2019 was 26.07%. The chart below shows Match Group’s net income margin throughout the forecast period, yielding a 23.6% margin in the CV year 2029E.
(Source: Factset3)
Comparison with Analyst Consensus On several fronts, we forecasted relatively modest growth rates in comparison with analyst consensus in the near term. The chart below shows our forecasted net income margin against the Factset analysts’ estimates.
(Source: Factset Analysts4) Our forecasted net income margin for 2020E is 23.13%, lower than the analyst consensus of 23.36%. Our estimates for net income margin also fall below analyst consensus for the following two years. We believe this is due to our income tax provision expense being forecasted at a much higher marginal tax rate. We modeled revenue growth at a more modest, but similar rate as the Factset analysts’ consensus. As previously mentioned, a key driver for revenue growth will depend on Match Group’s ability to develop their International operations. Analyst consensus agrees with our assumption as Factset analysts have the International segment growing by a rate of 18.41%, compared to our 15%. This discrepancy in the international direct revenue growth rate can be clarified by the acceptance rate of online dating in our emerging markets (Asia and Western Europe). The social stigma around online dating in these areas is relatively higher than in a more mature United States market and can result in uncertainties surrounding the international direct revenue growth rate. Given the uncertainty of profitability in the emerging markets and the length of our forecast horizon, we took a more conservative approach to estimating this growth rate. The chart below provides information regarding our estimates for total sales revenue for the first three years into the forecast horizon compared to analysts estimates on Factset.
(Source: Factset Analysts4)
Debt Maturity Structure Match Group carries no short-term debt on their balance sheet. As a growing company, it is important to reinvest profits back into operations. Match Group’s most recent debt issuance on February 11th, 2020 of 4.125% senior notes carries an S&P bond rating of BB.5 Match Group’s after-tax cost of debt at a 23.51% marginal tax rate is 4.13%. We believe that during this important growth stage for the company that all debt maturities will be refinanced in order to keep working capital accounts positive.
27.09%31.99%
31.62%
34.15%
34.66%
35.18%
35.28%
35.39%
35.08%
34.76%
34.43%
34.09%
33.74%
25.00%27.00%29.00%31.00%33.00%35.00%37.00%
2017
2018
2019
2020
E
2021
E
2022
E
2023
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2024
E
2025
E
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E
2027
E
2028
E
2029
E
Ope
ratin
g M
argi
n
Year
Historical & Forecasted Operating Margins
26.31%27.63%
26.07%
23.13%
23.31%23.92%
24.1…
24.39%
24.26%
24.11%
23.95%
23.78%23.60%
20.00%
22.00%
24.00%
26.00%
28.00%
2017
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E
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ENet
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gin
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Historical and Forecasted Net Income Margin
27.63% 26.07% 23.36% 25.33% 28.20%23.13%23.31% 23.92%
0.00%
50.00%
Dec '18(Actual)
Dec '19(Actual)
Dec '20E Dec '21E Dec '22E
Net
Inco
me
Mar
gin
Net Income Margin, Forecasted vs Analyst Consensus
Net Income Margin - Analyst Consensus
Net Income Margin - Forecasted
1,7302,051 2,299
2,6623,0282,216
2,4372,681
0
1,000
2,000
3,000
4,000
Dec '18(Actual)
Dec '19(Actual)
Dec '20E Dec '21E Dec '22ESale
s (M
illio
ns $
)
Sales, Forecasted vs Analyst Consensus
Sales - Analyst Consensus Sales - Forecasted
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(Source: Krause Fund Analysts)
Separation from IAC and Related Events
On December 19, 2019, Match Group and IAC entered into a definite agreement providing for the full separation of Match Group from the remaining businesses of IAC.1 The transaction is expected to close in Q2 of 2020 which will create two, separate public companies. Match Group has been operating independently, so separation from its parent company shouldn’t affect the businesses success. IAC has a long history of spinoffs, including Ticketmaster, Expedia and the Home Shopping Network. This is important to consider as one might interpret this separation for reasons other than new opportunities.
IAC plans to divest its stake in Match Group and create a similar company with only one class of common stock instead of two.19 IAC would lose voting or economic stake in Match, which could impose changes in Match Group’s board as a result. We anticipate Match Group continuing to grow year over year, as the daily operations of the company are not managed by IAC. As of June 30, 2019, IAC held 80.4% of Match’s ownership and 97.5% voting power. On January 31, 2020, IAC accepted a deal to receive two office building locations in Los Angeles in exchange for 1.4 million shares of Match Group stock.2 Separation from IAC is extremely significant for Match Group, and we believe this gives them the opportunity to execute their grow strategy with full independence.
INDUSTRY ANALYSIS Match Group is in the GICS classified Industry of Interactive Media and Services.6 This relatively new industry is unique because most of the products and services provided by firms within this industry are intangible goods. We will be conducting our industry analysis specifically on firms that operate online dating services in the United States. Market Share Concentration The online dating services industry has a ‘medium’ market share concentration, with most of it belonging to major players Match Group and privately held eHarmony.7 For these big players to maintain their market share within the industry they undergo M&A activities. Notable acquisitions that Match Group has done in the past include their brands Tinder, Plenty of Fish, and most recently Hinge.7 Match Group has a 33.4% market share within the industry.7 Match’s largest competitor for market share is eHarmony Inc. at 12.1%.7
Industry Cost Structure Match Group has a low cost competitive advantage compared to industry averages for online dating services. Match
Group’s cost of revenue for 2019 was 25.70%, less than half of the industry standard 58.40%.2,7 Match is able to maintain a low cost of revenue, or purchases, because of their dominant presence within the industry and having the ability to do many operational activities of running their business in-house. These efficiencies of scale are realized by saving on fees such as server costs. Below is a chart from IBISWorld that decomposes the average industry cost structure.
(Source: IBISWorld7)
Peer Comparison This industry was reclassified to include the big tech firms (AAPL, GOOGL, AMZN), because of these firms outlier levels of operations we will broaden our peer group to include companies whose primary business relates to the act of connecting human beings with one another. Bumble and eHarmony are the most direct competitors to Match Group’s portfolio of brands, however since they are privately held companies we do not have consistent enough financial to directly include them in the peer analysis. information The following companies are excluded from the peer comparison analysis due to negative growth estimates: TWTR8, PINS9, SNAP10. The peer analysis includes the following companies: FB, MOMO, MEET, MSFT, YY, SINA. We selected this peer group to value Match Group against several companies within our similar industry. The peer group average forward P/E20 ratio is 18.99.4 The chart below shows Match Group’s industry high forward P/E of 44.5 against the peer group.
(Source: Factset Analysts4)
Wages, 16.80%
Purchases, 58.40%
Profit, 12%
Depreciation, 2.20%
Marketing, 1.20%
Rent, 2.10%
Utilities, 0.90%Other, 6.40%
Online Dating Services Industry Average Costs (2019)
20.39 10.09 22.07 31.90 15.1 14.4 18.99
44.4
-
20.00
40.00
60.00
FB MOMO MEET MSFT YY SINA Average MTCH
1 Year Forward P/E of Peer Group
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Match Group’s relatively high forward P/E can be looked at as a risk, especially in negatively growing economy, but further analyzing P/E to include the company’s growth element normalizes Match Group’s P/E relative to growth. Looking at the peer group’s 2020E PEG ratio, the industry average is 2.35 compared to Match Group’s 2.4.4 Match has a much smaller market cap than both Facebook and Microsoft so we are forecasting that the high levels of growth in Match’s revenue will be able to be sustained throughout the forecasted period. The chart below shows the forecasted PEG’20 ratio across the peer group.
(Source: Factset Analysts4)
VALUATION DISCUSSION Forecasting Assumptions The forecasted accounts discussed in the following section may have some material differences from historical figures so we believe it is important to discuss our reasons for growing these accounts as we did. Cost of Revenue: We valued Match’s cost of revenue, exclusion of depreciation based on the results from their last three fiscal years dating back to 2017. We averaged this expense ratio from the last three years to reach the cost of revenue we used throughout our forecast period, a constant 23.47%. Income Tax Provision: We valued Match Group’s income tax provision for 2019 using the three year trailing average marginal tax rate of 23.51%. This assumption increases our forecasted income tax provision for 2020E to $157.50 million, a material increase from FY2019 balance of $20.36 million. Depreciation and Amortization: Both depreciation and amortization expenses were forecasted by using a five year trailing average of the depreciation/amortization rate, calculated by dividing depreciation expense by the previous year’s net PP&E figure. For forecasted 2020E and throughout the forecast horizon the depreciation rate is 57.27% and the amortization rate is 1.64%
Selling and Marketing Expense: Efficiencies of scale are an advantage for Match Group compared to smaller companies in their industry. We forecasted selling and marketing expense for 2020E at 20.84% of revenue, the same rate as FY2019. Over the forecast period the cost ratio decreases as a percentage of revenue, this is the efficiency of scale at work, until eventually increasing in the CV year 2029E to 22.05%. General and Administrative Expense: We forecasted for 2020E and throughout the entire forecast period a constant 3 year trailing average for general and administrative expense to revenue ratio. For 2020E we are forecasting a 12.12% general and administrative expense ratio throughout the CV year 2029E. Product Development Expense: We forecasted product development expense using a 3 year trailing average of product development expense to total revenue ratio. For 2020E throughout the forecast period to CV year 2029E we are using a 7.55% expense ratio. Dividends: Per the most recent 2019 10-K Match Group does not foresee paying any dividends in the near future, thus the company’s payout policy is 0. Normal Cash for Invested Capital: Normal cash used in the invested capital equation is 15% of revenue. Accounts Receivable: Accounts receivables is forecasted using a historical 3 year average rate of accounts receivable to total revenue ratio. The growth rate for A/R in 2020E through the CV year 2029E is 6.73%. Prepaid Expenses and Other Current Assets: Prepaid expenses is forecasted using the 3 year historical prepaid expenses to revenue ratio from the years 2017-2019. In 2020E we are forecasting a slight decrease in Match’s prepaid expenses from a 2.71% expense ratio in 2019 to 2.5% in 2020E and through the CV year 2029E. We valued the other current assets account using the same 2.5% as a growth rate. Right of Use Assets: We forecasted right of use assets using 2019’s ROU assets to Net PP&E ratio of 65.65% in 2020E and through the forecast period to CV year 2029E. Valuation Models Discussion of our valuation models can be seen in the following sections. Given our high revenue growth estimates for Match Group, our forecasted value drivers are optimistic yet consistent with historical performance. Return on Invested Capital: Match Group’s ROIC as a percentage of NOPLAT divided by the previous years invested capital for FY2019 is 147.61%. We are forecasting for 2020E that ROIC will
1.42 0.55 0.79 2.25 1.277.83
2.35 2.4
Peer Analysis 1 Year Forward PEG'20 Ratio
8
decrease to 134.41%, driven by a higher historical invested capital figure. Free Cash Flow: Match Group’s free cash flow for 2019 is $561.34 million. Due to our cash ‘plug’ account used while forecasting the balance sheet, an increase in the cash account will increase FCF in our forecast horizon. In 2020E Match’s free cash flow will increase by about 10% to $620.14. Economic Profit: Match Group’s economic profit for 2019 is 573.56, computed by multiplying the previous year’s invested capital by the spread between return on invested capital and the weighted average cost of capital. For 2020E we are forecasting a slightly lower EP figure of 556.35, driven by a lower forecasted ROIC. Discounted Cash Flow (DCF) Model: We valued Match Group in our DCF analysis using a CV Growth of NOPLAT of 2%, a CV Year ROIC of 219.97%, a WACC of 3.73%, and a Cost of Equity of 3.7%.The value of operating assets for year 2020E is forecasted at $50,292.50 million. Adjusting for non-operating assets and non-operating liabilities we reach Match’s value of equity of $47,719.90 million. Divided by 280.2 million shares outstanding we reached an intrinsic value at FY2019 end of $170.32, or an implied price as of today $171.64. Match Group’s stock price is trading around $80. We believe that our modest expectations of capital expenditures for the company in the forecast period may be the reason for this inflated stock price. Economic Profit Model: We are forecasting Match Group’s EP to be 536.4 million in year 2020E. However, the total present value of the forecast period’s EP is 49,866.80 million,. After discounting it by a 3.73% WACC. After adding in the previous year’s invested capital and making the proper non-operating asset and liability adjustments made in the DCF model above, we reach the same implied price as of today at $171.64. Dividend Discount Model (DDM): Match Group has only paid one special dividend to shareholders of record in 2018 and management has since indicated that they will not be paying out dividends in the near future. Thus we do not feel as if our valuation using the DDM approach is an accurate depiction of Match Group.
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Resources
1. Match Group. (2020, February 4). Q4 2019 Investor Presentation [Press release]. Retrieved April 21, 2020, from https://my.apps.factset.com/viewer/?_doc_id=1201239251_slides&_doc_date=20200205&_doc_product=NEWS_FCIS&_doc_docfn=U2FsdGVkX18jZw0qqqISMz7xh9kDCGDZvo0DiVNnIvsWTXIteJ75MtN%2BibdpdbRVEY6ICOMhbwqFtwON7zPu%2F7tXyCzs%2FsXc4p2JH5AGEpE%3D&_doc_title=Match%20Group,%20Inc.%20Slide%201%3A%20Q4%202019%20Earnings%20Call&_app_id=CSINews&_appSesGUID=fa7458d8208f-59c7-875a-d6df-a3b51581707701257
2. Match Group Fiscal 2019 Annual Report 3. Match Group Income Statement Factset. (2020).
Retrieved April 21, 2020, from https://my.apps.factset.com/navigator/company-security/income-statement/MTCH-US
4. Factset Analyst Estimates. (2020). Retrieved April 21, 2020, from https://my.apps.factset.com/navigator/company-security/all-estimates/MTCH-US
5. Match Group Debt Capitalization. (2020). Retrieved April 21, 2020, from https://my.apps.factset.com/navigator/company-security/dcs-detail/MTCH-US
6. CFRA Match Group Report [PDf]. (2020, February 11). CFRA.
7. Madigan, J. (n.d.). Dating Services in the US (Rep. No. 81299A). IBISWorld.
8. Twitter, Inc. (TWTR) Analyst Ratings, Estimates & Forecasts. (2020, April 21). Retrieved April 21, 2020, from https://finance.yahoo.com/quote/TWTR/analysis?p=TWTR
9. Pinterest, Inc. (PINS) Analyst Ratings, Estimates & Forecasts. (2020, April 21). Retrieved April 21, 2020, from https://finance.yahoo.com/quote/PINS/analysis?p=PINS
10. Snap Inc. (SNAP) Analyst Ratings, Estimates & Forecasts. (2020, April 21). Retrieved April 21, 2020, from https://finance.yahoo.com/quote/SNAP/analysis?p=SNAP
11. United States GDP Growth Rate1947-2019 Data: 2020-2022 Forecast: Calendar. (2020). Retrieved April 21, 2020, from https://tradingeconomics.com/united-states/gdp-growth
12. News Release. (2020). Retrieved April 21, 2020, from https://www.bea.gov/news/2020/gross-domestic-product-fourth-quarter-and-year-2019-third-estimate-corporate-profits
13. Real Gross Domestic Product. (2020, January 30). Retrieved April 21, 2020, from https://fred.stlouisfed.org/series/A191RL1Q225SBEA
14. Tanzi, A., & Lu, W. (2020, April 17). U.S. Is Expected to Lead a Contraction in Global GDP This Year. Retrieved April 21, 2020, from https://www.bloomberg.com/news/articles/2020-04-
17/u-s-is-expected-to-lead-a-contraction-in-global-gdp-this-year
15. Bachman, D. (2020). United States Economic Forecast. Retrieved April 21, 2020, from https://www2.deloitte.com/us/en/insights/economy/us-economic-forecast/united-states-outlook-analysis.html
16. Dmitrieva, K. (2020, April 16). US Jobless Claims Top 5.2 Million. Retrieved April 21, 2020, from https://www.bloomberg.com/news/articles/2020-04-16/u-s-jobless-claims-total-5-25-million-in-week-four-of-lockdown
17. Consumer Confidence Index®: The Conference Board. (2020, March 31). Retrieved April 21, 2020, from https://www.conference-board.org/data/consumerconfidence.cfm
18. Laura, M. (2019, December 19). California Joins Europe in Fight for Online Privacy. Retrieved April 21, 2020, from https://www.bloomberg.com/news/articles/2019-12-20/california-joins-europe-in-fight-for-online-privacy-quicktake
19. Bensaid, A. (2020). Bloomberg Intelligence Match Group Research [PDF]. Bloomberg Intelligence.
10
Important Disclaimer This report was created by students enrolled in the Security Analysis (6F:112) class at the University of Iowa. The report was originally created to offer an internal investment recommendation for the University of Iowa Krause Fund and its advisory board. The report also provides potential employers and other interested parties an example of the students’ skills, knowledge and abilities. Members of the Krause Fund are not registered investment advisors, brokers or officially licensed financial professionals. The investment advice contained in this report does not represent an offer or solicitation to buy or sell any of the securities mentioned. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Krause Fund may hold a financial interest in the companies mentioned in this report.
Match G
roup, IncRevenue Decom
position*Am
ounts in thousands, excpet for ARPU*ARPU on a m
onthly per-person basisFiscal Years Ending Feb.1
20172018
20192020E
2021E2022E
2023E2024E
2025E2026E
2027E2028E
CV2029E
Geographical Breakdow
n
Direct Revenue:North Am
erica741.33
902.481024.161
1177.791354.45
1557.621791.26
2059.952368.95
2724.293132.93
3602.874143.30
NA Growth Rates
17.86%11.88%
15.00%15.00%
15.00%15.00%
15.00%15.00%
15.00%15.00%
15.00%15.00%
International539.92
774.69983.013
1228.771535.96
1919.952399.93
2999.923749.90
4687.375859.21
7324.029155.02
INT Growth Rates
30.31%21.19%
25.00%25.00%
25.00%25.00%
25.00%25.00%
25.00%25.00%
25.00%25.00%
Total Direct Revenue1281.25
1677.172007.17
2406.552890.41
3477.574191.20
5059.876118.84
7411.668992.15
10926.8913298.32
Direct Revenue Growth Rate
23.61%16.44%
19.90%20.11%
20.31%20.52%
20.73%20.93%
21.13%21.32%
21.52%21.70%
Indirect Revenue49.41
52.6844.084
45.4146.77
48.1749.62
51.1152.64
54.2255.84
57.5259.25
Indirect Revenue Growth Rate
6.20%-19.50%
3.00%3.00%
3.00%3.00%
3.00%3.00%
3.00%3.00%
3.00%3.00%
Total Revenue1330.66
1730.092051.42
2215.542437.09
2680.802895.26
3126.883314.50
3513.373724.17
3947.624184.48
Revenue Growth Rate
23.09%15.66%
8.00%10.00%
10.00%8.00%
8.00%6.00%
6.00%6.00%
6.00%6.00%
Tinder Segment
20172018
20192020E
2021E2022E
2023E2024E
2025E2026E
2027E2028E
2029ETinder Revenue
403.22805.32
1152.0451324.85
1589.821907.79
2289.342518.28
2770.113047.12
3351.833687.01
4055.71Grow
th rate58.21%
49.93%30.10%
15.00%20.00%
20.00%20.00%
10.00%10.00%
10.00%10.00%
10.00%10.00%
Other Brands878.03
871.86855.13
897.89
942.78
989.92
1,039.41
1,091.39
1,145.95
1,203.25
1,263.41
1,326.59
1,392.92
Grow
th rate-2.32%
-0.70%-1.92%
4.76%4.76%
4.76%4.76%
4.76%4.76%
4.76%4.76%
4.76%4.76%
Average Subscribers G
rowth
20172018
20192020E
2021E2022E
2023E2024E
2025E2026E
2027E2028E
2029ENorth Am
erica3.57
4.164.55
4.785.12
5.475.86
6.276.58
6.917.26
7.628.00
NA Growth Rates
14.23%8.63%
4.76%6.54%
6.54%6.54%
6.54%4.76%
4.76%4.76%
4.76%4.76%
International2.84
3.714.73
4.975.46
6.016.61
7.277.78
8.328.91
9.5310.20
INT Growth Rates
23.52%21.51%
4.76%9.09%
9.09%9.09%
9.09%6.54%
6.54%6.54%
6.54%6.54%
Total6.41
7.879.28
10.2111.23
12.3613.59
14.5415.56
16.6517.82
19.0620.40
APRU
(Monthly)
20172018
20192020E
2021E2022E
2023E2024E
2025E2026E
2027E2028E
2029ENorth Am
erica0.56
$ 0.59
$ 0.661
0.68
0.70
0.72
0.74
0.77
0.79
0.81
0.84
0.86
0.89
NA Growth Rates
5.08%10.74%
2.91%2.91%
2.91%2.91%
2.91%2.91%
2.91%2.91%
2.91%2.91%
International0.51
$ 0.56
$ 0.56
0.59
0.62
0.65
0.68
0.71
0.75
0.79
0.83
0.87
0.91
INT Growth Rates
8.93%0.00%
4.76%4.76%
4.76%4.76%
4.76%4.76%
4.76%4.76%
4.76%4.76%
Total0.54
$ 0.57
$ 0.58
$ 0.60
$ 0.63
$ 0.65
$ 0.68
$ 0.71
$ 0.73
$ 0.76
$ 0.79
$ 0.83
$ 0.86
$
Match Group, Inc
Income Statem
ent
Fiscal Years Ending Feb.1 2017
20182019
2020E2021E
2022E2023E
2024E2025E
2026E2027E
2028ECV2029E
Revenue
1,330.701,729.80
2,051.262215.54
2437.092680.80
2895.263126.88
3314.503513.37
3724.173947.62
4184.48Operating Costs and Expenses:C
ost of revenue exclusive of depreciation-279.50
-410.00-527.18
-519.96-571.96
-629.15-679.49
-733.84-777.88
-824.55-874.02
-926.46-982.05
Selling and m
arketing expense-375.60
-420.00-427.44
-461.64-498.57
-538.45-581.53
-628.05-678.29
-732.56-791.16
-854.45-922.81
General and adm
inistrative expense-179.80
-180.30-255.00
-268.57-295.42
-324.97-350.96
-379.04-401.78
-425.89-451.44
-478.53-507.24
Product developm
ent expense-101.20
-132.00-151.96
-167.23-183.95
-202.35-218.54
-236.02-250.18
-265.19-281.10
-297.97-315.85
Depreciation
-32.60-33.00
-32.45-37.76
-38.33-38.57
-38.68-38.72
-38.74-38.75
-38.75-38.75
-38.75A
mortization of intangibles
-1.50-1.30
-8.73-3.87
-4.07-4.27
-4.48-4.71
-4.94-5.19
-5.45-5.72
-6.01Total operating costs and expenses
-970.10-1,176.60
-1,402.73-1459.03
-1592.30-1737.76
-1873.67-2020.38
-2151.81-2292.12
-2441.93-2601.89
-2772.71O
perating income
360.50553.30
648.53756.51
844.79943.04
1,021.591,106.50
1,162.681,221.24
1,282.241,345.73
1,411.77Interest expense
-77.60-73.40
-91.72-86.60
-102.17-104.72
-106.92-109.26
-111.49-113.86
-116.05-118.36
-120.79O
ther income / expense, net
-30.807.80
-2.03-
-
-
-
-
-
-
-
-
-
E
arnings from continuing operations before incom
e taxes252.10
487.60554.79
669.91742.62
838.32914.67
997.241051.19
1107.391166.19
1227.371290.97
Income tax (provision) benefit
103.85-14.70
-20.36-157.50
-174.59-197.09
-215.04-234.45
-247.14-260.35
-274.17-288.56
-303.51N
et earnings from continuing operations
356.00473.00
534.43512.41
568.03641.23
699.63762.79
804.05847.04
892.01938.81
987.46Loss from
discontinued operations, net of tax-5.70
-0.400.00
-
-
-
-
-
-
-
-
-
-
Net earnings
350.30472.60
534.43512.41
568.03
641.23
699.63
762.79
804.05
847.04
892.01
938.81
987.46
N
et loss (earnings) attributable to noncontrolling interests-0.20
5.300.31
-
-
-
-
-
-
-
-
-
-
Net earnings attributable to M
atch Group, Inc. shareholders
350.10477.90
534.73512.41
568.03
641.23
699.63
762.79
804.05
847.04
892.01
938.81
987.46
Per share
B
asic EP
S1.33
$ 1.73
$ 1.91
$ 1.83
2.03
2.29
2.50
2.73
2.88
3.03
3.19
3.35
3.52
D
ividends per Share
2.00$
--
--
--
--
--
-
Basic W
eighted Average S
hares Outstanding
264277
280.5280
280280
280280
280280
280280
280A
ll figures in millions of U
.S. D
ollar except per share items.
Match Group, Inc
Balance Sheet
Fiscal Years Ending Feb.1 2017
20182019
2020E2021E
2022E2023E
2024E2025E
2026E2027E
2028E2029E
AssetsC
ash199.61
259.47307.69
1008.931491.38
2046.602655.33
3327.174031.87
4776.835569.35
6411.317304.72
Cash E
quivalentsM
oney Market Funds
71.2072.55
150.87151.36
151.86152.36
152.87153.37
153.88154.38
154.89155.41
155.92
Excess C
ash1.82
-145.077.12
7.177.22
7.277.32
7.367.41
7.467.51
7.567.61
Accounts R
eceivables, Gross
117.5899.78
117.04149.97
164.97181.47
195.99211.66
224.36237.83
252.10267.22
283.25
Allow
ance for Doubtful A
ccounts0.78
0.720.58
0.931.03
1.131.22
1.321.40
1.481.57
1.671.77
Accounts R
eceivables, Net of allow
ance116.80
99.052116.46
149.04163.94
180.34194.76
210.35222.97
236.34250.52
265.56281.49
Other C
urrent Assets
55.4057.766
94.2094.89
101.42108.53
114.92121.78
127.56133.65
140.06146.82
153.95P
repaid Expenses
16.3719.476
55.6855.39
60.9367.02
72.3878.17
82.8687.83
93.1098.69
104.61O
ther39.00
38.2938.54
39.5140.49
41.5142.54
43.6144.70
45.8146.96
48.1349.34
Total Current A
ssets444.70
343.765676.34
1411.401915.82
2495.093125.21
3820.034543.68
5308.686122.34
6986.667903.70
Right of U
se Assets
--
43.2944.28
44.7144.89
44.9645.00
45.0145.02
45.0245.02
45.02G
ross Property, P
lant & E
quipment
170.48171.38
188.50227.26
266.01304.76
343.52382.27
421.03459.78
498.53537.29
576.04A
ccumulated D
epreciation-108.86
-113.03-122.56
-160.32-198.65
-237.22-275.90
-314.62-353.36
-392.11-430.86
-469.61-508.37
Net P
roperty, Plant &
Equipm
ent61.62
58.3565.94
66.9367.36
67.5467.62
67.6567.66
67.6767.67
67.6767.67
Goodw
ill1247.60
1,244.761239.58
1239.581239.58
1239.581239.58
1239.581239.58
1239.581239.58
1239.581239.58
Intangible Assets, N
et230.30
237.64228.32
235.80247.59
259.97272.97
286.62300.95
316.00331.80
348.39365.81
Deferred Incom
e Taxes123.20
134.35140.73
147.76155.15
162.91171.05
179.61188.59
198.02207.92
218.31229.23
LT Investments
11.109.08
5.086.08
7.098.10
9.1010.11
11.1212.13
13.1314.14
15.15O
ther non-current assets11.50
25.12424.44
25.9128.50
31.3533.86
36.5638.76
41.0843.55
46.1648.93
Total Assets2130.10
2,053.062423.71
3177.753705.80
4309.434964.35
5685.166435.35
7228.178071.01
8965.949915.09
Liabilities & Shareholders' Equity
LiabilitiesA
ccounts Payable
10.109.528
20.1916.94
18.6420.50
22.1423.91
25.3526.87
28.4830.19
32.00D
eferred Revenue
198.10209.935
218.84221.55
243.71268.08
289.53312.69
331.45351.34
372.42394.76
418.45A
ccrued expenses and other current liabilities110.60
135.971178.58
183.72202.10
222.31240.09
259.30274.86
291.35308.83
327.36347.00
Total Current Liabilities318.80
355.434417.61
422.22464.44
510.89551.76
595.90631.65
669.55709.73
752.31797.45
Long-Term D
ebt, Net
1252.701,515.91
1603.481891.74
1938.941979.71
2022.982064.28
2108.062148.74
2191.512236.51
2283.86Incom
e Taxes Payable
8.4013.92
12.60123.28
136.66154.27
168.32183.52
193.45203.79
214.61225.87
237.57D
eferred Income Taxes
28.5020.174
18.2918.56
18.8419.12
19.4119.70
19.9920.29
20.6020.91
21.22O
ther long-term liabilities
14.5021.76
51.0736.26
39.8943.88
47.3951.18
54.2557.50
60.9564.61
68.49
Redeem
able noncontrolling interests6.10
-0.71
-
-
-
-
-
-
-
-
-
-
Com
mitm
ents and contingencies-
--
-
-
-
-
-
-
-
-
-
-
Total Liabilities1629.00
1927.1972103.75
2492.062598.77
2707.872809.86
2914.573007.40
3099.873197.40
3300.203408.58
Shareholders' EquityC
omm
on Equity:
81.60-57.1
-171.30-143.09
-114.88-86.66
-58.45-30.24
-2.0326.18
54.3982.61
110.82C
omm
on Stock
0.500.50
0.5028.71
56.9285.14
113.35141.56
169.77197.98
226.19254.41
282.62A
dditional Paid-In C
apital81.10
-57.575-171.77
Retained E
arnings532.20
453.778988.51
1500.92068.9
2710.23409.8
4172.64976.6
5823.76715.7
7654.58642.0
Accum
ulated other comprehensive loss
-112.30-137.166
-147.44-147.44
-147.44-147.44
-147.44-147.44
-147.44-147.44
-147.44-147.44
-147.44Treasury S
tock0.00
-135.455-349.80
-524.7-699.6
-874.5-1049.4
-1224.3-1399.2
-1574.1-1749.0
-1923.9-2098.8
Total Shareholders' E
quity501.20
125.864319.96
685.691107.02
1601.562154.49
2770.593427.95
4128.294873.61
5665.736506.50
Total Liabilities & Shareholders' Equity2130.10
2,053.062423.71
3177.753705.79
4309.424964.35
5685.166435.35
7228.178071.01
8965.939915.08
Match Group, IncHistorical Cash Flow Statement
Fiscal Years Ending Feb.1 2015 2016 2017 2018 2019Net earnings from continuing operations 120.49 172.01 355.98 472.97 534.42Adjustments to reconcile earnings to net cash provided by operating activitiesStock-based compensation expense 50.08 52.99 69.09 66.03 89.72Depreciation 25.98 31.23 32.61 32.97 32.45Amortization of intangibles 20.10 23.03 1.47 1.32 8.73Excess tax benefits from stock-based awards -38.38 -29.68 - - -Deferred income taxes -22.53 -8.20 -118.25 -19.64 -7.47Acquisition-related contingent consideration fair value adjustments -11.06 -9.20 5.25 0.32 0.00Other adjustments, net -0.88 -4.80 22.14 0.23 8.54Changes in assets and liabilities, net of effects of acquisitions 65.28 6.72 -47.20 49.26 -7.99Accounts receivable -29.34 -6.64 -51.59 17.27 -17.86Other assets -11.28 -2.39 -10.56 -14.61 -24.30Accounts payable and accrued expenses and other current liabilities 31.72 -24.86 -16.80 20.77 29.08Income taxes payable (receivable) 36.38 24.00 -1.00 12.77 -4.38Deferred revenue 37.81 16.62 32.75 13.06 9.48Net cash provided by operating activities 209.08 234.11 321.09 603.46 658.40Net cash aquired (used) in business combinations -611.32 -2.53 -0.28 1.14 -3.76Capital expenditures -29.16 -48.90 -28.83 -30.95 -38.75Proceeds from the sale of a business, net - - 96.14 0.00 -Proceeds from the sale of long-term investment - - 60.16 0.00 -Proceeds from sale of marketable securities - 11.72 0.00 0.00 -Purchases of long-term investments 0.00 -0.50 -9.08 -3.80 0.00Other, net -8.38 8.87 0.07 -4.14 1.06Net cash (used in) provided by investing activities -648.86 -31.35 118.19 -37.76 -41.45Borrowings under the Credit Facility - - - 260.00 40.00Term Loan Borrowings 788.00 0.00 75.00 0.00 -Proceeds from bond offering - 400.00 450.00 0.00 350.00Principal payments on senior notes - - -445.17 0.00 -Principal payments on term loan - -450.00 0.00 0.00 -Principal payments on credit facility - - - - -300.00Debt issuance costs -17.17 -7.81 -12.29 -1.28 -5.59Purchase of treasury stock - - - -133.46 -216.35Dividends - - - -556.37 0.00Proceeds from issuance of common stock pursuant to stock-based awards - 39.38 59.44 0.01 0.00Withholding taxes paid on behalf of employees on net settled stock-based awards - -29.83 -254.21 -207.72 -203.12Purchase of noncontrolling interests -2.86 -1.13 -0.44 -9.98 -1.65Repurchase of stock-based awards -23.43 0.00 -272.46 0.00 -Acquisition-related contingent consideration payments -5.51 0.00 -23.43 -0.19 0.00Other, net 0.00 -11.80 -0.17 -0.57 -0.07Net cash used in / provided by financing activities 408.22 -31.51 -423.71 -649.55 -336.85
Match Group, Inc
Forecasted Cash Flow Statem
ent
Fiscal Years Ending Feb.1 2020E
2021E2022E
2023E2024E
2025E2026E
2027E2028E
2029ENet earnings from
continuing operations 512.41
568.03 641.23
699.63 762.79
804.05 847.04
892.01 938.81
987.46 + Adjustm
ents for Non-Cash Operating ExpensesDepreciation Expense
37.7638.33
38.5738.68
38.7238.74
38.7538.75
38.7538.75
Amortization Expense
3.874.07
4.274.48
4.714.94
5.195.45
5.726.01
Change in Allowance for Doubtful Accounts
0.360.09
0.100.09
0.100.08
0.080.09
0.090.10
Change in Deferred Taxes (6.76)
(7.11) (7.47)
(7.86) (8.26)
(8.68) (9.13)
(9.60) (10.09)
(10.60) + Changes in W
orking Capital AccountsAccounts Receivable, Gross
(32.94) (15.00)
(16.50) (14.52)
(15.68) (12.70)
(13.46) (14.27)
(15.13) (16.03)
Prepaid Expenses0.29
(5.54)
(6.09)
(5.36)
(5.79)
(4.69)
(4.97)
(5.27)
(5.59)
(5.92)
Other Current Assets
(0.96)
(0.99)
(1.01)
(1.04)
(1.06)
(1.09)
(1.12)
(1.15)
(1.17)
(1.20)
Accounts Payable(3.25)
1.69
1.86
1.64
1.77
1.43
1.52
1.61
1.71
1.81
Deferred Revenue
2.71
22.16
24.37
21.45
23.16
18.76
19.89
21.08
22.35
23.69
Accrued expenses and other current liabilities
5.15
18.37
20.21
17.78
19.21
15.56
16.49
17.48
18.53
19.64
Right of U
se Asset
(0.99)
(0.42)
(0.18)
(0.08)
(0.03)
(0.01)
(0.01)
(0.00)
(0.00)
(0.00)
Income Taxes Payable
110.68
13.38
17.61
14.05
15.20
9.93
10.34
10.82
11.26
11.71
Net Cash Provided by Operating Activities628.32
637.06
716.97
768.94
834.82
866.32
910.61
957.01
1,005.24
1,055.40
Cash Flows From
Investing ActivitiesCap Ex (Change in Gross PP&
E)(38.75)
(38.75)
(38.75)
(38.75)
(38.75)
(38.75)
(38.75)
(38.75)
(38.75)
(38.75)
Capitalization of Intangible Assets
(11.35)
(15.86)
(16.65)
(17.48)
(18.35)
(19.27)
(20.24)
(21.25)
(22.31)
(23.43)
Other non current assets(1.47)
(2.59)
(2.85)
(2.51)
(2.71)
(2.19)
(2.33)
(2.47)
(2.61)
(2.77)
M
arketable Securities(0.50)
(0.50)
(0.50)
(0.50)
(0.50)
(0.51)
(0.51)
(0.51)
(0.51)
(0.51)
Excess Cash
(0.05)
(0.05)
(0.05)
(0.05)
(0.05)
(0.05)
(0.05)
(0.05)
(0.05)
(0.05)
Redeemable Non-controlling interests
(0.71)
-
-
-
-
-
-
-
-
-
Long-term Investm
ents(1.01)
(1.01)
(1.01)
(1.01)
(1.01)
(1.01)
(1.01)
(1.01)
(1.01)
(1.01)
Net Cash used for in Investing Activities
(53.84)
(58.75)
(59.81)
(60.30)
(61.38)
(61.78)
(62.88)
(64.03)
(65.25)
(66.52)
Cash Flows from
Financing ActivitiesPurchase of Treasury stock
(174.90)
(174.90)
(174.90)
(174.90)
(174.90)
(174.90)
(174.90)
(174.90)
(174.90)
(174.90)
AOCL-
-
-
-
-
-
-
-
-
-
Increase in Long-Term
Debt288.26
47.20
40.77
43.27
41.30
43.78
40.67
42.77
45.00
47.35
Other Long-term
Liabilities(14.81)
3.63
3.99
3.51
3.79
3.07
3.25
3.45
3.66
3.88
Change in Com
mon Equity
28.21
28.21
28.21
28.21
28.21
28.21
28.21
28.21
28.21
28.21
Net Cash Provided by Financing Acitvities126.76
(95.87)
(101.93)
(99.91)
(101.61)
(99.84)
(102.76)
(100.47)
(98.04)
(95.47)
Net Change in Cash Flow701.24
482.44
555.22
608.74
671.84
704.69
744.97
792.51
841.96
893.42
Beginning Cash
307.69
1,008.93
1,491.38
2,046.60
2,655.33
3,327.17
4,031.87
4,776.83
5,569.35
6,411.31
End of Year Cash1,008.93
1,491.38
2,046.60
2,655.33
3,327.17
4,031.87
4,776.83
5,569.35
6,411.31
7,304.72
Match Group, Inc
Comm
on Size Income Statem
ent
Fiscal Years Ending Feb.1 2017
20182019
2020E2021E
2022E2023E
2024E2025E
2026E2027E
2028E2029E
Revenue
100.00%100.00%
100.00%100.00%
100.00%100.00%
100.00%100.00%
100.00%100.00%
100.00%100.00%
100.00%Operating Costs and Expenses:C
ost of revenue exclusive of depreciation21.00%
23.70%25.70%
23.47%23.47%
23.47%23.47%
23.47%23.47%
23.47%23.47%
23.47%23.47%
Selling and m
arketing expense28.23%
24.28%20.84%
20.84%20.46%
20.09%20.09%
20.09%20.46%
20.85%21.24%
21.64%22.05%
General and adm
inistrative expense13.51%
10.42%12.43%
12.12%12.12%
12.12%12.12%
12.12%12.12%
12.12%12.12%
12.12%12.12%
Product developm
ent expense7.61%
7.63%7.41%
7.55%7.55%
7.55%7.55%
7.55%7.55%
7.55%7.55%
7.55%7.55%
Depreciation
2.45%1.91%
1.58%1.70%
1.57%1.44%
1.34%1.24%
1.17%1.10%
1.04%0.98%
0.93%A
mortization of intangibles
0.11%0.08%
0.43%0.17%
0.17%0.16%
0.15%0.15%
0.15%0.15%
0.15%0.14%
0.14%Total operating costs and expenses
72.90%68.02%
68.38%65.85%
65.34%64.82%
64.72%64.61%
64.92%65.24%
65.57%65.91%
66.26%O
perating income
27.09%31.99%
31.62%34.15%
34.66%35.18%
35.28%35.39%
35.08%34.76%
34.43%34.09%
33.74%Interest expense
5.83%4.24%
4.47%3.91%
4.19%3.91%
3.69%3.49%
3.36%3.24%
3.12%3.00%
2.89%Interest expense-third party
5.83%Interest expense-related party
0.00%O
ther income / expense, net
2.31%0.45%
0.10%0%
0%0%
0%0%
0%0%
0%0%
0%E
arnings from continuing operations before incom
e taxes18.94%
28.19%27.05%
30.24%30.47%
31.27%31.59%
31.89%31.71%
31.52%31.31%
31.09%30.85%
Income tax (provision) benefit
7.81%0.85%
0.99%7.11%
7.16%7.35%
7.43%7.50%
7.46%7.41%
7.36%7.31%
7.25%N
et earnings from continuing operations
26.75%27.34%
26.05%23.13%
23.31%23.92%
24.16%24.39%
24.26%24.11%
23.95%23.78%
23.60%Loss from
discontinued operations, net of tax0.43%
0.02%0.00%
0%0%
0%0%
0%0%
0%0%
0%0%
Net earnings26.32%
27.32%26.05%
23.13%23.31%
23.92%24.16%
24.39%24.26%
24.11%23.95%
23.78%23.60%
Net loss (earnings) attributable to noncontrolling interests
0.02%0.31%
0.01%Net earnings attributable to M
atch Group, Inc. shareholders
26.31%27.63%
26.07%23.13%
23.31%23.92%
24.16%24.39%
24.26%24.11%
23.95%23.78%
23.60%
Match Group, Inc
Comm
on Size Balance Sheet
Fiscal Years Ending Feb.1 2017
20182019
2020E2021E
2022E2023E
2024E2025E
2026E2027E
2028E2029E
AssetsC
ash & S
hort-Term Investm
ents20.49%
10.81%22.70%
52.69%67.72%
82.30%97.25%
111.55%126.51%
140.57%153.91%
166.54%178.48%
Accounts R
eceivables, Net of allow
ance8.78%
5.73%5.68%
6.73%6.73%
6.73%6.73%
6.73%6.73%
6.73%6.73%
6.73%6.73%
Other C
urrent Assets
4.16%3.34%
4.59%4.28%
4.16%4.05%
3.97%3.89%
3.85%3.80%
3.76%3.72%
3.68%Total C
urrent Assets
33.42%19.87%
32.97%63.70%
78.61%93.07%
107.94%122.17%
137.09%151.10%
164.39%176.98%
188.88%N
et Property, P
lant & E
quipment
4.63%3.37%
3.21%3.02%
2.76%2.52%
2.34%2.16%
2.04%1.93%
1.82%1.71%
1.62%G
oodwill
93.76%71.96%
60.43%55.95%
50.86%46.24%
42.81%39.64%
37.40%35.28%
33.28%31.40%
29.62%Intangible A
ssets, Net
17.31%13.74%
11.13%10.64%
10.16%9.70%
9.43%9.17%
9.08%8.99%
8.91%8.83%
8.74%D
eferred Income Taxes
9.26%7.77%
6.86%6.67%
6.37%6.08%
5.91%5.74%
5.69%5.64%
5.58%5.53%
5.48%LT Investm
ents0.83%
0.52%0.25%
0.27%0.29%
0.30%0.31%
0.32%0.34%
0.35%0.35%
0.36%0.36%
Other non-current assets
0.86%1.45%
1.19%1.17%
1.17%1.17%
1.17%1.17%
1.17%1.17%
1.17%1.17%
1.17%Total Assets
160.07%118.69%
118.16%143.43%
152.06%160.75%
171.46%181.82%
194.16%205.73%
216.72%227.12%
236.95%Liabilities & Shareholders' Equity
LiabilitiesA
ccounts Payable
0.76%0.55%
0.98%0.76%
0.76%0.76%
0.76%0.76%
0.76%0.76%
0.76%0.76%
0.76%D
eferred Revenue
14.89%12.14%
10.67%10.00%
10.00%10.00%
10.00%10.00%
10.00%10.00%
10.00%10.00%
10.00%A
ccrued expenses and other current liabilities8.31%
7.86%8.71%
8.29%8.29%
8.29%8.29%
8.29%8.29%
8.29%8.29%
8.29%8.29%
Total Current Liabilities23.96%
20.55%20.36%
19.06%19.06%
19.06%19.06%
19.06%19.06%
19.06%19.06%
19.06%19.06%
Long-Term D
ebt, Net
94.14%87.64%
78.17%85.39%
79.56%73.85%
69.87%66.02%
63.60%61.16%
58.85%56.65%
54.58%Incom
e Taxes Payable
0.63%0.80%
0.61%5.56%
5.61%5.75%
5.81%5.87%
5.84%5.80%
5.76%5.72%
5.68%D
eferred Income Taxes
2.14%1.17%
0.89%0.84%
0.77%0.71%
0.67%0.63%
0.60%0.58%
0.55%0.53%
0.51%O
ther long-term liabilities
1.09%1.26%
2.49%1.64%
1.64%1.64%
1.64%1.64%
1.64%1.64%
1.64%1.64%
1.64%
Redeem
able noncontrolling interests0.46%
-0.03%
0.00%0.00%
0.00%0.00%
0.00%0.00%
0.00%0.00%
0.00%0.00%
Com
mitm
ents and contingencies0.00%
0.00%0.00%
0.00%0.00%
0.00%0.00%
0.00%0.00%
0.00%0.00%
0.00%0.00%
Total Liabilities122.42%
111.41%102.56%
112.48%106.63%
101.01%97.05%
93.21%90.73%
88.23%85.86%
83.60%81.46%
Shareholders' EquityC
omm
on Equity
6.13%-3.30%
-8.35%-6.46%
-4.71%-3.23%
-2.02%-0.97%
-0.06%0.75%
1.46%2.09%
2.65%R
etained Earnings
39.99%26.23%
48.19%67.75%
84.89%101.10%
117.77%133.44%
150.15%165.76%
180.33%193.90%
206.52%A
ccumulated other com
prehensive loss-8.44%
-7.93%-7.19%
-6.65%-6.05%
-5.50%-5.09%
-4.72%-4.45%
-4.20%-3.96%
-3.73%-3.52%
Treasury Stock
0.00%-7.83%
-17.05%-23.68%
-28.71%-32.62%
-36.25%-39.15%
-42.22%-44.80%
-46.96%-48.74%
-50.16%Total S
hareholders' Equity
37.66%7.28%
15.60%30.95%
45.42%59.74%
74.41%88.61%
103.42%117.50%
130.86%143.52%
155.49%Total Liabilities & Shareholders' Equity
160.07%118.69%
118.16%143.43%
152.06%160.75%
171.46%181.82%
194.16%205.73%
216.72%227.12%
236.95%
Match Group, IncWeighted Average Cost of Capital (WACC) Estimation
Cost of Equity:Risk-Free Rate 0.74%
Beta 0.48
Equity Risk Premium 6.16%
Cost of Equity 3.70%
Cost of Debt:Risk-Free Rate 0.74%
Implied Default Premium 4.66%
Pre-Tax Cost of Debt 5.40%
Marginal Tax Rate 23.51%
After-Tax Cost of Debt 4.13%
Market Value of Common Equity: MV WeightsTotal Shares Outstanding 280,757,611.000 single shares
Current Stock Price 81.35$
MV of Equity 22,839.63 (in Millions) 93.263%
Market Value of Debt:Short-Term Debt - No ST Debt
Current Portion of LTD - No CP of LT Debt
Long-Term Debt 1,603.48$
PV of Operating Leases 46.48$
MV of Total Debt 1,649.96 (in Millions) 6.74%
Market Value of the Firm 24,489.59 (in Millions) 100.00%
Estimated WACC 3.73%
Match Group, Inc
Dividend Discount Model (DDM
) or Fundamental P/E Valuation M
odel
Fiscal Years Ending Feb.1 2020E
2021E2022E
2023E2024E
2025E2026E
2027E2028E
2029E
EPS1.83
$ 2.03
$ 2.29
$ 2.50
$ 2.73
$ 2.88
$ 3.03
$ 3.19
$ 3.35
$ 3.52
$
Key Assumptions
CV growth of EPS
3.00% CV Year ROE
15.18% Cost of Equity
3.70%
Future Cash Flows
P/E Multiple (CV Year)
115.14
EPS (CV Year)3.52
$ Future Stock Price
405.48$
Dividends Per Share-
--
--
--
--
Discounted Cash Flows
00
00
00
00
0291.73
$
Intrinsic Value as of Last FYE170.32
$ Im
plied Price as of Today171.64
$
Match G
roup, IncDiscounted Cash Flow
(DCF) and Economic Profit (EP) Valuation M
odels
Key Inputs: CV Grow
th of NOPLAT2.00%
CV Year ROIC219.97%
WACC
3.73% Cost of Equity
3.70%
Fiscal Years Ending Feb.1 2020E
2021E2022E
2023E2024E
2025E2026E
2027E2028E
2029CV
DCF M
odel:Free Cash Flow
(FCF)620.1
629.6707.3
764.6828.8
868.3911.8
957.11004.1
1053.0Continuing Value (CV)
61553.3PV of FCF
597.9585.1
633.8660.5
690.3697.2
705.8714.2
722.444285.4
Value of Operating Assets:50292.5
Non-Operating Adjustments
Non-Operating AssetsExcess Cash
7.1M
oney Market Funds
150.9LT Investm
ents5.1
Non-O
perating LiabilitiesESO
P799.7
LT Debt (includes Current M
aturities)1891.7
PV O
p Leases44.3
Value of Equity47719.9
Shares Outstanding (Millions)
280.2Intrinsic Value of Last FYE
170.32$
Implied Price as of Today
171.64$
EP Model:
Economic Profit (EP)
556.4627.2
701.6761.0
825.1867.8
911.6957.2
1004.71054.0
Continuing Value (CV)61065.9
PV of EP536.4
582.9628.6
657.4687.2
696.8705.7
714.4722.8
43934.7
Total PV of EP49866.8
Invested Capital (last FYE)425.7
Value of Operating Assets:50292.5
Non-Operating Adjustments
Non-Operating AssetsExcess Cash
7.1M
oney Market Funds
150.9LT Investm
ents5.1
Non-O
perating LiabilitiesESO
P799.7
LT Debt (includes Current M
aturities)1891.7
PV O
p Leases44.3
Value of Equity47719.9
Shares Outstanding (Millions)
280.2Intrinsic Value of Last FYE
170.32$
Implied Price as of Today
171.64$
Match Group, Inc
Relative Valuation Models
EPSEPS
Est. 5yrTicker
Company
Price2020E
2021EP/E 20
P/E 21EPS gr.
PEG 20PEG 21
FB
Fa
ce
bo
ok
$1
68
.83
$8
.28
$
10
.28
2
0.3
9
16
.42
1
4.3
1.4
2
1.1
5
MO
MO
Mo
mo
Inc
$2
2.5
1$
2.2
3
$2
.84
1
0.0
9
7.9
3
18
.20
.55
0
.44
ME
ET
Me
et G
rou
p In
c$
5.9
6$
0.2
7
$0
.34
2
2.0
7
17
.53
2
8.0
0.7
9
0.6
3
MS
FT
Mic
roso
ft Co
rpo
ratio
n$
17
8.6
0$
5.6
1
$6
.19
3
1.9
0
28
.90
1
4.2
2.2
5
2.0
4
YY
JOY
Y In
c$
61
.91
$4
.09
$
6.3
4
15
.10
9
.80
1
1.9
1.2
7
0.8
2
SIN
AS
INA
Co
rp$
33
.91
$2
.36
$
3.1
6
14
.40
1
0.7
0
1.8
7.8
3
5.8
2
Av
era
ge
18.99
15.21
2.35
1.81
MT
CH
Ma
tch
Gro
up
, Inc
$8
1.3
5 $
1.8
3
$ 2
.03
4
4.5
4
0.1
1
8.5
0
2.4
2
.2
Implied Relative Value:
P/E (EPS20) $ 34.74
P/E (EPS21)30.87
$ PEG (EPS20)
79.59$
PEG (EPS21)68.12
$ P/Tangible BV
82.21$
Match Group, Inc
Effects of ESOP Exercise and Share Repurchases on Comm
on Stock Account and Number of Shares Outstanding
Number of Options Outstanding (shares):
11.776Average Tim
e to Maturity (years):
6.44Expected Annual Num
ber of Options Exercised:2
Current Average Strike Price:15.44
$ Cost of Equity:
3.70%Current Stock Price:
$81.35
Fiscal Years Ending Feb.1 2020E
2021E2022E
2023E2024E
2025E2026E
2027E2028E
2029EIncrease in Shares Outstanding:
22
22
22
22
22
Average Strike Price:15.44
$ 15.44
$ 15.44
$ 15.44
$ 15.44
$ 15.44
$ 15.44
$ 15.44
$ 15.44
$ 15.44
$ Increase in Com
mon Stock Account:
28
28
28
28
28
28
28
28
28
28
Change in Treasury Stock175
175175
175175
175175
175175
175Expected Price of Repurchased Shares:
$81.3584.36
$ 87.48
$ 90.71
$ 94.06
$ 97.54
$ 101.15
$ 104.89
$ 108.76
$ 112.78
$ Num
ber of Shares Repurchased:2
2
2
2
2
2
2
2
2
2
Shares Outstanding (beginning of the year)281
280280
280280
280280
280280
280Plus: Shares Issued Through ESOP
22
22
22
22
22
Less: Shares Repurchased in Treasury2
2
2
2
2
2
2
2
2
2
Shares Outstanding (end of the year)
280.177280
280280
280280
280280
280280
Match Group, Inc
Present Value of Operating Lease Obligations
Fiscal Years Ending Feb.1 2017
20182019
Year1
8.311.6
16.0Year
28.1
13.515.1
Year3
7.312.1
8.9Year
45.3
6.83.4
Year5
3.86.0
2.9Thereafter
10.317.5
5.7Total M
inimum
Payments
43.167.4
52.0Less: Cum
ulative Interest7.3
11.76.6
PV of Minim
um Paym
ents35.8
55.745.4
Implied Interest in Year 1 Paym
ent74.5
1.93.0
Pre-Tax Cost of Debt5.40%
5.40%5.40%
Years Implied by Year 6 Paym
ent2.7
2.92.0
Expected Obligation in Year 6 & Beyond
3.776.021
2.905
Present Value of Lease Payments
PV of Year 17.9
11.015.1
PV of Year 27.3
12.113.6
PV of Year 36.2
10.37.6
PV of Year 44.3
5.52.8
PV of Year 52.9
4.62.2
PV of 6 & beyond
7.212.1
4.1Capitalized PV of Paym
ents35.8
55.745.4
Match Group, Inc
Key Managem
ent Ratios
Fiscal Years Ending Feb.1 2017
20182019
2020E2021E
2022E2023E
2024E2025E
2026E2027E
2028ECV2029E
Ratio DefinitionsLiquidity Ratios:
Current RatioCurrent Assets / Current Liabilities
1.390.97
1.623.34
4.124.88
5.666.41
7.197.93
8.639.29
9.91Cash Ratio
Cash & Cash Equivalents / Current Liabilities
0.860.53
1.122.77
3.554.32
5.105.85
6.647.38
8.088.74
9.37Operating Cash Flow
RatioCFO / Current Liabilities
1.011.70
1.581.49
1.371.40
1.391.40
1.371.36
1.351.34
1.32
Asset-Managem
ent Ratios:Receivables Turnover
Revenues / Average Accounts Receivable14.73
16.0219.03
16.6915.57
15.5715.44
15.4415.30
15.3015.30
15.3015.30
Asset TurnoverRevenues / Average Total Assets
0.640.83
0.920.79
0.710.67
0.620.59
0.550.51
0.490.46
0.44Capital Turnover
Revenues / Working Capital
10.57-148.24
7.932.24
1.681.35
1.130.97
0.850.76
0.690.63
0.59
Financial Leverage Ratios:LT Debt to Total Equity Ratio (%
)LT Debt / Total Shareholders' Equity
2.50
12.04
5.01
2.76
1.75
1.24
0.94
0.75
0.61
0.52
0.45
0.39
0.35
LT Debt to Total Asset Ratio (%)
LT Debt / Total Assets0.59
0.74
0.66
0.60
0.52
0.46
0.41
0.36
0.33
0.30
0.27
0.25
0.23
Debt to Equity Ratio (%
)Total Liabilities / Total Shareholders' Equity
3.25
15.31
6.58
3.63
2.35
1.69
1.30
1.05
0.88
0.75
0.66
0.58
0.52
Profitability Ratios:Return on Assets
Net Income / Total Assets
16.44%23.28%
22.06%16.12%
15.33%14.88%
14.09%13.42%
12.49%11.72%
11.05%10.47%
9.96%Return on Equity
Net Income / Total Shareholders' Equity
69.89%375.48%
167.03%74.73%
51.31%40.04%
32.47%27.53%
23.46%20.52%
18.30%16.57%
15.18%Gross Profit M
argin(Revenues - COGS) / Revenues
79.00%76.30%
74.30%76.53%
76.53%76.53%
76.53%76.53%
76.53%76.53%
76.53%76.53%
76.53%Payout Policy Ratios:
Total Payout Ratio Dividend Paym
ents / (NI + Share Repurchases)0%
0%0%
0%0%
0%0%
0%0%
0%0%
0%0%
Match Group, IncSensitivity Tables
171.85 0.18 0.28 0.38 0.48 0.58 0.68 0.78 6.61% 3,186.10 436.80 229.16 152.84 113.21 88.95 72.59 6.46% 4,251.86 462.75 239.19 158.72 117.30 92.06 75.08 6.31% 6,382.64 491.89 250.08 165.05 121.67 95.37 77.73 6.16% 12,769.12 524.84 261.96 171.85 126.34 98.90 80.55 6.01% 9,279,409.97 562.39 274.97 179.21 131.35 102.66 83.55 5.86% (12,829.75) 605.58 289.28 187.17 136.74 106.69 86.76 5.71% (6,416.79) 655.79 305.08 195.83 142.55 111.02 90.18
171.85 0.44% 0.54% 0.64% 0.74% 0.84% 0.94% 1.04%2.30% 257.01 237.08 219.90 204.94 191.80 180.16 169.77 2.20% 237.65 220.53 205.60 192.47 180.84 170.46 161.14 2.10% 221.16 206.26 193.16 181.53 171.15 161.83 153.41 2.00% 206.94 193.85 182.23 171.85 162.53 154.10 146.45 1.90% 194.54 182.94 172.56 163.23 154.80 147.14 140.16 1.80% 183.65 173.28 163.95 155.51 147.84 140.84 134.43 1.70% 174.00 164.66 156.22 148.54 141.53 135.11 129.20 1.60% 165.39 156.94 149.25 142.23 135.79 129.87 124.40
171.85 174.97% 189.97% 204.97% 219.97% 233.97% 248.97% 263.97%4.18% 133.47 133.58 133.67 133.75 133.82 133.88 133.94 4.03% 144.27 144.39 144.49 144.58 144.66 144.72 144.79 3.88% 156.80 156.94 157.05 157.15 157.22 157.30 157.37 3.73% 171.51 171.66 171.78 171.89 171.98 172.06 172.13 3.58% 189.02 189.18 189.32 189.44 189.53 189.62 189.71 3.43% 210.20 210.38 210.54 210.67 210.78 210.88 210.97 3.28% 236.36 236.56 236.73 236.88 237.01 237.12 237.23 3.15% 264.54 264.77 264.97 265.14 265.28 265.41 265.52
171.85 3.40% 3.50% 3.60% 3.70% 3.80% 3.90% 4.00%4.43% 203.06 190.42 179.18 169.12 160.07 151.87 144.43 4.33% 204.20 191.42 180.07 169.92 160.79 152.53 145.03 4.23% 205.34 192.44 180.98 170.73 161.52 153.19 145.63 4.13% 206.50 193.46 181.89 171.55 162.26 153.86 146.24 4.03% 207.67 194.49 182.81 172.38 163.00 154.54 146.85 3.93% 208.85 195.54 183.74 173.21 163.75 155.22 147.47 3.83% 210.04 196.59 184.68 174.05 164.51 155.90 148.09 3.73% 211.25 197.66 185.62 174.90 165.27 156.59 148.72
Cost of Equity
Cost
of D
ebt
WAC
C
Beta
ERP
Risk-Free Rate
CV ROIC
CV G
row
th o
f NO
PLAT
Match Group, Inc
Valuation of Options Granted under ESOP
Current Stock Price$81.35
Risk Free Rate0.74%
Current Dividend Yield0.00%
Annualized St. Dev. of Stock Returns43.79%
AverageAverage
B-SValue
Range ofNum
berExercise
Remaining
Optionof Options
Outstanding Optionsof Shares
PriceLife (yrs)
PriceGranted
$0.01 to $10.002.50
8.856.30
73.09$
183$
$10.1 to $20.006.82
14.316.00
68.31$
466$
$20.01 to $30.002.10
23.987.80
62.27$
131$
$30.01 to $40.000.36
33.108.00
57.18$
20$
Total11.776
15.44$
6.4467.55
$ 800
$
Match G
roup, IncValue Driver Estim
ation
Fiscal Years Ending Feb.1 2017
20182019
2020E2021E
2022E2023E
2024E2025E
2026E2027E
2028ECV
2029E
NO
PLAT:
Revenue1,330.70
1,729.802,051.26
2,215.542,437.09
2,680.802,895.26
3,126.883,314.50
3,513.373,724.17
3,947.624,184.48
- Cost of Revenue (279.5)
(410.0) (527.2)
(520.0) (572.0)
(629.2) (679.5)
(733.8) (777.9)
(824.5) (874.0)
(926.5) (982.0)
- Selling and marketing expense
(375.6) (420.0)
(427.4) (461.6)
(498.6) (538.5)
(581.5) (628.0)
(678.3) (732.6)
(791.2) (854.5)
(922.8)
- General and adm
inistrative expense (179.8)
(180.3) (255.0)
(268.6) (295.4)
(325.0) (351.0)
(379.0) (401.8)
(425.9) (451.4)
(478.5) (507.2)
- Produce development expense
(101.2) (132.0)
(152.0) (167.2)
(184.0) (202.3)
(218.5) (236.0)
(250.2) (265.2)
(281.1) (298.0)
(315.8)
- Depreciation
(32.6) (33.0)
(32.5) (37.8)
(38.3) (38.6)
(38.7) (38.7)
(38.7) (38.7)
(38.8) (38.8)
(38.8) - Am
ortization of intangibles (1.5)
(1.3) (8.7)
(3.9) (4.1)
(4.3) (4.5)
(4.7) (4.9)
(5.2) (5.4)
(5.7) (6.0)
+ Implied interest on operating leases
1.94 3.01
2.34 2.39
2.41 2.42
2.43 2.43
2.43 2.43
2.43 2.43
2.43 EBITA
362.44556.21
650.84758.90
847.21945.46
1,024.021,108.93
1,165.111,223.68
1,284.671,348.16
1,414.20
Marginal Tax Rate
30.03%25.28%
23.51%23.51%
23.51%23.51%
23.51%23.51%
23.51%23.51%
23.51%23.51%
23.51%Less Adjusted TaxesIncom
e Tax Provision (Benefit)(103.85)
14.67
20.361
157.50
174.59
197.09
215.04
234.45
247.14
260.35
274.17
288.56
303.51
+ Tax shield on interest expense23.30
18.5621.56
20.3624.02
24.6225.14
25.6926.21
26.7727.28
27.8328.40
+ Tax shield on operating lease interest0.58
0.76
0.55
0.56
0.57
0.57
0.57
0.57
- Tax on other incom
e1.97
+ Tax shield on other expense9.25
0.48
-
-
-
-
-
-
-
-
-
-
Adjusted Taxes
(70.72)
32.02
42.95
178.42
199.18
222.28
240.75
260.71
273.35
287.12
301.46
316.38
331.91
Plus Change in Deferred TaxesD
eferred Tax Liability25.30
28.50
20.17
18.29
18.56
18.84
19.12
19.41
19.70
19.99
20.29
20.60
20.91
D
eferred Tax Asset5.30
123.20134.35
140.73147.76
155.15162.91
171.05179.61
188.59198.02
207.92218.31
Change in Deferred Taxes
(14.90)
(114.70)
(19.47)
(8.27)
(6.76)
(7.11)
(7.47)
(7.86)
(8.26)
(8.68)
(9.13)
(9.60)
(10.09)
NO
PLAT:
418.26
409.49
588.42
572.21
641.27
716.07
775.79
840.36
883.50
927.87
974.08
1,022.18
1,072.20
Invested Capital (IC):
Net operating w
orking capital
Norm
al Cash199.61
259.47307.69
332.33365.56
402.12434.29
469.03497.17
527.00558.63
592.14627.67
+ Accounts Receivable116.80
99.05116.46
149.04163.94
180.34194.76
210.35222.97
236.34250.52
265.56281.49
+ Prepaid Expenses16.37
19.4855.68
55.3960.93
67.0272.38
78.1782.86
87.8393.10
98.69104.61
+ Other current operating assets
39.0038.29
38.5439.51
40.4941.51
42.5443.61
44.7045.81
46.9648.13
49.34
- Accounts Payable10.10
9.5320.19
16.9418.64
20.5022.14
23.9125.35
26.8728.48
30.1932.00
- Deferred Revenue
198.10209.94
218.84221.55
243.71268.08
289.53312.69
331.45351.34
372.42394.76
418.45
- Accrued Expenses and other current liabilities110.60
135.97178.58
183.72202.10
222.31240.09
259.30274.86
291.35308.83
327.36347.00
- Income Taxes Payable
8.4013.92
12.60123.28
136.66154.27
168.32183.52
193.45203.79
214.61225.87
237.57N
et Operating W
orking Capital44.57
46.94
88.16
30.76
29.82
25.82
23.90
21.74
22.60
23.66
24.88
26.35
28.09
+ PP&E, net
61.6258.35
65.9466.93
67.3667.54
67.6267.65
67.6667.67
67.6767.67
67.67
+ Intangible assets, net230.30
237.64228.32
235.80247.59
259.97272.97
286.62300.95
316.00331.80
348.39365.81
+ Capitalized PV of Operating Leases
35.8355.70
43.2944.28
44.7144.89
44.9645.00
45.0145.02
45.0245.02
45.02Invested Capital (IC):
372.32398.63
425.71377.78
389.48398.22
409.45421.01
436.23452.35
469.37487.43
506.60
Free Cash Flow (FCF):
NO
PLAT418.26
409.49588.42
572.21641.27
716.07775.79
840.36883.50
927.87974.08
1022.181072.20
Change in IC26.31
27.08-47.93
11.708.74
11.2311.56
15.2216.12
17.0318.06
19.16Free Cash Flow
(FCF):418.26
383.18561.34
620.14629.57
707.33764.57
828.80868.28
911.76957.06
1004.121053.04
10.48%1.52%
12.35%8.09%
8.40%4.76%
5.01%4.97%
4.92%4.87%
Return on Invested Capital (ROIC):
NO
PLAT418.26
409.49588.42
572.21641.27
716.07775.79
840.36883.50
927.87974.08
1022.181072.20
Beginning IC372.32
398.63425.71
377.78389.48
398.22409.45
421.01436.23
452.35469.37
487.43
ROIC
109.98%147.61%
134.41%169.75%
183.85%194.81%
205.24%209.85%
212.70%215.34%
217.78%219.97%
Economic Profit (EP):
Beginning IC0.00
372.32398.63
425.71377.78
389.48398.22
409.45421.01
436.23452.35
469.37487.43
x (ROIC - W
ACC)-3.73%
106.26%143.88%
130.69%166.02%
180.13%191.09%
201.51%206.13%
208.98%211.61%
214.05%216.24%
Economic Profit (EP):
0.00395.62
573.56556.35
627.19701.56
760.96825.10
867.82911.62
957.231004.69
1054.04
