Match Group Inc.'s Unsecured Debt Upgraded To ‘BB’ From 'BB-'; Recovery Rating Revised To '3' From '5'; ICR Affirmed

  • U.S.-based online dating brands operator Match Group Inc. plans to pay a $560 million dividend, which we estimate will increase the company's leverage to 2.2x for the 12 months ended Sept. 30, 2018.
  • Because the company's debt leverage remains within our threshold for the rating, we affirmed our 'BB' issuer credit rating on Match Group and our 'BBB-' issue-level rating with '1' recovery rating.
  • We raised our issue-level ratings on the company's existing senior unsecured notes to 'BB' from 'BB-' and revised our recovery rating to '3' from '5', reflecting our improved recovery valuation for the company in a hypothetical default scenario.
  • The stable rating outlook reflects our expectation that Match will achieve double-digit organic revenue growth rates over the next two years primarily due to strong subscriber growth and increasing monetization. We also expect adjusted debt leverage will remain around 2x over the next 12 months.
NEW YORK (S&P Global Ratings) Dec. 5, 2018--S&P Global Ratings today took the 
rating actions listed above. In S&P Global Ratings' view, Match Group Inc. has 
a strong competitive position, good recurring subscription revenue, growing 
user base, and expanding profitability. These factors are partly offset by 
limited barriers to entry, revenue concentration at Tinder, risks pertaining 
to rapid innovation of the online space, and continuously emerging new online 
dating applications and platforms. Match competes with a number of off-line 
and online players. Facebook recently announced its plan to launch its online 
dating service, which we believe poses a meaningful threat to the long-term 
growth of some of Match's matured and challenged brands such as Match.com 
given Facebook's user demographic base. We believe Facebook's dating services 
will benefit from the platform's large user base, however we believe consumers 
typically use multiple dating apps simultaneously and both companies will 
benefit from ongoing adoption of online dating over the short term. Over the 
long term, we expect that if Facebook's launch is successful and well 
received, it could hurt user growth and average revenue spent by each user on 
some of Match's properties. 

Match has experienced strong growth as it benefits from the growing consumer 
demand for online dating services. Most of the recent subscriber growth comes 
from Tinder, which is the number one global dating brand operating in 196 
countries. We believe that a significant portion of Tinder's growth is driven 
by new feature deployment and the company will continue to invest in product 
innovation to maintain its growth. We expect that growth will moderate, as we 
are not forecasting another feature such as Tinder Gold, which helped the 
company add over 1.5 million subscribers in the past 12 months. Additionally, 
we believe that both marketing and product investment are vital to Match's 
longer-term growth and we expect the company will continue to invest in those 
areas to acquire new subscribers.

At the end of 2018, we forecast Match's EBITDA margin at about 41%, up from 
36% at the end of 2017 because of a combination of lower marketing costs as a 
percentage of total revenue and better efficiency. We expect EBITDA margin 
will remain high in 2019, as the company continues to leverage Tinder and 
other smaller brands.

The stable rating outlook reflects our expectation that Match will have 
healthy organic growth rates over the next two years, primarily due to strong 
subscriber growth and increasing monetization, and that its adjusted debt 
leverage will remain around 2x area.

We could lower the rating if the company's adjusted debt leverage exceeds and 
remains above 3x for a prolonged period due to large debt-financed 
acquisitions or dividend payments, or if it faces significant operational 
challenges such as subscriber losses and revenue declines likely due to 
greater competition from emerging players or from Facebook. 

We view an upgrade as less likely than a downgrade over the next 12 months. A 
potential upgrade would require additional revenue diversification and 
non-Match and Tinder brands achieving critical mass and becoming a meaningful 
contributor of EBITDA, thus increasing the company's revenue and EBITDA 
diversity. Additionally, because Match is a majority-owned subsidiary of IAC, 
an upgrade of Match would mostly likely require an upgrade of IAC and a 
financial commitment to maintain leverage below 2x