Why Morgan Stanley thinks online dating stocks can weather a US recession
Finding love ranks pretty high in people's goals, making online dating a staple, according to Morgan Stanley. Read on to find out why Match is its top pick in the sector.
With US inflation hitting 9.1% in June, consumers bracing for an economic downturn are expected to give up nonessential items. That has fueled the stock market selloff. But there's one sector outside of food, gasoline and rent that's immune to recession: online dating.
"You may think consumers would view online dating as a nonessential item," Lauren Schenk, an equity analyst at Morgan Stanley said in a podcast. "Finding love or a significant other ranks usually pretty high in most people's life goals, so maybe it's a staple."
That need for a long-term companion is driving Morgan Stanley's "overweight" call on Match Group (MTCH). That means investors may benefit from allocating a bigger portion of their portfolio to the stock. The company that owns dating apps including Tinder, OKCupid, Hinge and Our Time is also the bank's top pick in the sector.
"We see a long and growing runway given demographic tailwinds and greater adoption of online dating among the 620 million global online singles ages 18 to 65" excluding China, the analysts said.
Here's why online dating stocks are worth a second look
Historical data shows online dating apps aren't like your usual internet stocks that suffered during economic downturns. Subscriber growth for Match accelerated slightly in 2008, the start of the global financial crisis, and in 2009, Schenk said.
"We found that the continued need for human connection, and the low price of online dating, resulted in minimal business impact during the global financial crisis, despite a significant pullback in consumer spending," she said in a podcast Friday.
The online dating market has grown since then. About 39% of couples started their relationship through online dating in 2017, compared with 22% in 2009, Schenk said. That bolsters the argument that those apps are "more of a staple than discretionary," she said.
With consumers eager to go out after being cooped up at home during Covid, there's also pent-up demand for the app today. That's something that was absent during 2008 and 2009, signaling more potential for subscriber growth.
The shift from desktop over a decade ago to mobile has also attracted younger users. There's also the profile-boosting offering in apps that attracts a larger portion of the revenue today.
"People still need love and relationships in recession and you can argue they need it more," Schenk said. "The low average monthly cost means it's likely not an item that single consumers would cut first."
Market consensus on Match
Twenty out of 22 analysts who track the stock have either a "buy" or "overweight" rating on the stock and only one says "sell," according to data published on the Wall Street Journal website.
On average, they expect shares to almost double to US$112.57, from US$67.67 as of 1:56 p.m. Tuesday in New York.
The company has created and acquired online dating products, each serving different people in terms of demographics, location, and culture. With that, "Match successfully created a network effect for its entire portfolio of services that are becoming more mainstream," Ali Mogharabi, an equity analyst at Morningstar said in a note last month.
Mogharabi has a four-star rating on the stock, the second-highest, with a fair value of US$107, representing a 58% upside potential from its current price.
Market consensus on Bumble
Eleven out of 16 analysts who track the company have either a "strong buy" or "buy" rating on Bumble Inc. (BMBL), according to data published on Yahoo Finance website. On average, their one-year price target is US$31.13 for Bumble, implying the stock that's currently trading at US$32.99 is now fairly valued.
That valuation is the reason Morgan Stanley analysts have an "equal-weight" rating on the stock, which means its allocation in any investment portfolio shouldn't go above the percentage prescribed in its weighting in indexes.
The company "has become a formidable #2 global online dating player in the early innings of its international expansion," Morgan Stanley analysts said.
Still, the bank's analysts said they prefer dating stocks with a portfolio of brands to one with just a single-brand approach.
At the time of publication, markets editor Luzi Ann Javier doesn't own any shares in Match or Bumble.