BofA: Weakness In Match Group Shares On FTC Suit A Buying Opportunity

Shares of Match Group Inc MTCH, the owner of dating services Match.com and Tinder, among others, came under selling pressure Wednesday following the revelation the FTC is suing the company for allegedly using fake profiles to draw in subscribers for Match.com.

One analyst at Bank of America Merrill Lynch is not too concerned about the adverse development.

The Analyst

Nat Schindler reiterated a Buy rating on Match Group with a $102 price target.

The Thesis

The impact to Match Group from the FTC suit is largely ephemeral, Schindler said in a Wednesday note. (See his track record here.)

The major impact is likely to be on consumer brand perception, the analyst said. 

The headline is likely to generate limited awareness, and consumers will return to online dating, he said. 

Consumers are largely aware of spam accounts on online dating sites and therefore won't be surprised to learn of their existence, Schindler said. 

The FTC has limited power to act on a first offense, the analyst said, citing Bloomberg Intelligence litigation research.

Such lawsuits in the past have been settled with a consent decree that outlaws the offending behavior, he said. 

If a monetary settlement is involved, the analyst forecast total damages of about $45 million, assuming subscription cost of $90 based on $30 per month and an average subscription term of three months for the 500,000 subscriptions purchased.

The estimated settlement amount  should not matter much for Match, which is expected to generate over $625 million in free cash flow in 2019, he said. 

And any setback to Match.com's growth will only have limited impact on March Group's financials, as non-Tinder brands are likely to contribute less than 39% of Match's revenues in 2020, Schindler said. 

"We see worries from the FTC lawsuit as passing and associated stock weakness as a particularly attractive buying opportunity," the analyst said. 

"We continue to see Match as a strong grower with catalysts for 2H sales/profit upside from app optimizations, bypassing Tinder Play store fees and international subscriber growth."

The Price Action

Match Group shares were flat at the close at $71.44. 

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