Sunday, 14 July 2013

Investing in online dating (Match.com)

Online dating has gone mainstream with one third of marriages now beginning online. This is according to a study conducted by the University of Chicago and is based on a sample of 19,131 people over the past seven years.

Key to a successful marriage is to meet online
The study found that online couples have longer, happier marriages though it needs to be disclosed that eHarmony.com paid for the study.This does makes sense as I guess you can assume that people dating online are serious about a relationship and interests can be matched. It is also becoming more normal to meet someone online meaning the pool of available partners increases each year.

The people meeting online where likely to be 30-39, employed and had a higher income (not a bad place to start!). The study found the least successful marriages were blind dates, bars and people who met in virtual worlds. Divorce rates for those who met online was around 6% compared to 7.6% for people offline. They also found that people are relatively honest online with lies tending to be around slight exaggerations of weight and height.

How do you invest in the dating game?
Well there are two major players eHarmony.com and Match.com. Unfortunately eHarmony.com is a private company and Match.com is owned within Interactive Corp (IACI) which owns over 50 internet businesses. Match.com is the market leader with 24% market share according to IBIS World.


The only way to invest in this area is IACI which is an internet conglomerate. They also own the largest European dating site meetic.com, OkCupid, Singlesnet and chemistry.com. Dating is around 28% of operating income. In the past year dating segment sales have grown at around a mid-teens growth rate.

The good news for investors is that IACI has a track record of spinning off businesses when they are able to stand on their own and no longer need nurturing from the parent company. In our opinion its possible that with IACI under performing the market and trading at a low valuation compared to peers that match.com could be spun off. Within IACI's businesses match.com is the most likely to stand on its own. It would also most likely trade at a premium to the group with IACI overall trading on 11x forward multiple.

Here for a good time or a long time?
So while there is no pure play dating company it is possible IACI could spin off its dating business. It has a great track record of spin offs with Expedia which then spun off Trip Advisor for a combined market value of $13.4 billion 3x larger than IACI value of $4.1 billion. It's possible that this spin-off history could repeat.

Jason

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Disclosure: Decisive has a long position in Interactive Corp (IACI) stock
The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.