Online dating could be worth $12 billion — and it's all thanks to Tinder, analyst says (MTCH)

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Match Group is rallying Friday after a Wall Street analyst launched coverage with a bullish price target of $66 — 28% above where shares settled Thursday.
Nomura Instinet says the online-dating sector could be worth $12 billion by 2020.
Nomura says it's worried about Facebook's foray into dating either, and says Match keeps competition at bay by buying out competitors, like its Hinge acquisition this summer.
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Wall Street thinks online dating could be the next hot sector, and the latest estimate sees the market growing to $12 billion by 2020.

It all comes down to peoples' increasing willingness to try out online dating, Mark Kelley, an analyst with Nomura Instinet, said in an note to clients Friday. It’s his first research published on Match Group — the company behind Tinder, OKCupid, Hinge, Match.com, and a slew of other singles sites — where he's easily the most bullish analyst, with a $66 price target for the stock — 28% above where shares settled on Thursday.

"Roughly half of internet users are single, and we estimate 20% of them will be willing to use online dating products by 2020 (up from 15% in 2015), which equates to ~310 million people globally (excluding China)," Kelly said.

"We believe that Match will remain the clear leader in dating for the foreseeable future, as Tinder growth continues, other brands continue to evolve, and as Hinge reaches scale."

Hinge is Match Group's most recent portfolio addition after buying a 51% stake in the app in June, with the option to buy the company outright over the next year. That acquisition is reflective of Match's overall strategy, Kelley says, of buying out competitors before they reach meaningful scale that could potentially eat into Match's user base.

"As far as other competition is concerned, we expect Match to continue acquiring assets it views as either a threat or additive to its already well-run brands," Kelley wrote. "This is evidenced by its majority ownership of Hinge, which is a property we believe is a natural next step for Tinder members seeking longer-term relationships."

Even Facebook, which recently announced a foray into dating, shouldn't be a concern. After all, it's not a winner-take-all market in Kelley's view. This is especially true as Match's international subscribers become closer to a majority. By 2020, Nomura estimates just under half of the user base will be outside the US.

Here's how the firm sees subscribers and revenue growing over the next two years:

Match GRoup revenue and user growth tinder hinge

Tinder continues to drive Match Group’s revenue growth, which we estimate will reach $815 million in 2018 (up 104% YoY), as the positive impact from Gold (launched last summer) has persisted longer than anticipated, and as newer monetization features add incremental opportunities to capture wallet share," Kelley said.

Match gained more than 5% early Friday following Nomura's coverage launch and Kelley's bullish price target. Shares are up 66% this year.