Jefferies Shares 'The Fuzzy Math On Tinder'

IAC/InterActiveCorp (NASDAQ: IACI) is planning an IPO for its online dating division, The Match Group (TMG), soon, and management believes it could generate up to $500 million in EBITDA in 2016.

Although the company’s board of directors has already approved the move, Jefferies analyst Brian Fitzgerald and the U.S. Internet Team do not expect the IPO to happen before November.

According to a report issued Thursday, “The IPO will put a focus on Tinder, which will be the swing factor in terms of determining the ultimate valuation.” About a year ago, the company said Tinder could generate $75 million of EBITDA. Until more disclosure is seen, the analysts believe investors will likely assign a multiple to that figure.

How Will The Spinoff Work?

The research note takes a look at how the spinoff will be articulated. The Match Group expects to issue less than 20 percent of its newly released common stock; the parent company will keep the rest.

Moreover, the analysts explained, “The IPO will give both companies the ability to finance acquisitions via the new high value currency (TMG stock), will give TMG cash and provides the potential for a future tax-free spinoff.”

Related Link: Benchmark's Daniel Kurnos: IAC Spinoff Of Match.com Unlocks Additional Value

The Match Group Financial Crib Sheet

The Match Group has been investing in its assets over the past couple of years. Not only did it put money down in Match.com and Tinder, but it also funded non-dating assets like The Princeton Review and DailyBurn.

The analysts add that Tinder monetization did not start until the second quarter of 2015, meaning the app did not contribute to revenue in 2013 or 2014.

As stated above, management believes The Match Group – including Tinder – could generate $500 million in EBITDA by 2016. These are, however, the actual results and Jefferies’ estimates for the upcoming years:

• 2013: Revenue $805MM (+13 percent Y/Y); EBITDA $267MM (33 percent margin)
• 2014: Revenue $897MM (+11 percent Y/Y); EBITDA $265MM (30 percent margin)
• 2015e: Revenue $1.06B (+18 percent Y/Y); EBITDA $284MM (27 percent margin)
• 2016e: Revenue $1.28B (+21 percent Y/Y); EBITDA $480MM (38 percent margin)

In terms of the TMG’s ultimate valuation, Tinder will be the swing factor, the Jefferies report assured.

The Fuzzy Math On Tinder

As of October 2014, Tinder reported 50 million highly engaged users (16.000 “swipes” per second sec; more than 1 billion “swipes” a day), up from just 10 million in April. The analysts at Jefferies estimate Tinder Plus already counts more than 500,000 paid users.

A few months earlier, management said Tinder would already generate $75 million in annual EBITDA “based on applying applicable monetization rates (NA + EU 100 percent, ROW 25 percent) currently seen at OK Cupid.” The management team also noted “Tinder should be a ~50 percent margin business, implying it could have generated $150MM in 2014 revenue.”

Choosing the correct multiple will be an elaborate task, the analysts believe, choosing LinkedIn Corp (NYSE: LNKD), which currently trades at 27x their 2016 EBITDA estimate, as a reference.

Jefferies maintains a Hold rating and a $80 price target (up from $73) on shares of IAC/InterActiveCorp.

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