The bear market provides a one-time buying opportunity for this internet stock

The S&P 500 is down about 20% in 2022. This is one of the worst years on record for stocks and the biggest annual decline for the index since the great financial crisis in 2008. But looking under the hood, things have been much worse for certain individual stocks, with 25 stocks down at least 50% by 2022.

The second worst performer of 2022 is an online dating company match group (MTCH 0.97%), which is down a whopping 69% this year. The owner of Tinder, Hinge, and other online dating sites underwent a board change and are currently facing major foreign exchange headwinds, driving investors away from the stock.

Investors gave up on Match Group in 2022. Here’s why this sale is misplaced and why you should consider adding the online dating company to your portfolio.

Match Group: Wrestling in 2022

To provide context, investors need to understand why Match Group’s stock fared so badly in 2022. First, it underwent a CEO transition when Shar Dubey retired earlier this year. The board of directors has recruited Bernard Kim, a former executive of mobile gaming company Zynga, as the company’s new leader. After coming on board, Kim took a close look at the operations at Match Group’s various dating sites and didn’t like how things were run.

He then fired Tinder’s leadership team due to poor product and revenue trends and brought in a new group to run the division. These shortcomings will hurt Tinder’s revenue growth in the coming quarters. Since Tinder generates the majority of Match Group’s revenue, it will also have a major impact on the company’s overall revenue growth.

In addition to Tinder failures, Match Group is facing major currency headwinds due to the rising value of the US dollar. Since Match Group is a global company, but reports its financial data in US dollars, changes in exchange rates can positively or negatively affect sales growth. In 2022, revenue growth is facing nearly one double digits foreign exchange headwind.

Add both factors together and Match Group now expects Tinder’s direct revenues to remain flat year over year in Q4 2022, which is a huge slowdown from last year’s 23% growth. Wall Street hates it when revenue growth slows unexpectedly, so it’s no surprise that Match Group shares plummeted in 2022.

Why 2023 will be better

You can’t blame short-term traders for selling Match Group through the end of 2022. The company is poised to report poor results that may not get any better in the coming quarters. But if you’re a long-term investor with a multi-year time horizon, Match Group’s business looks healthy right now.

First, currency headwinds are unlikely to be nearly as great in coming years. In the third quarter, Tinder’s revenue grew 16% year-over-year on a currency-neutral basis, but 6% year-over-year in US dollars. This is unlikely to repeat itself in 2023 and should help the company accelerate its revenue growth in 2023.

Second, there is still a long-term opportunity for online dating to grow in popularity worldwide. Tinder, if it can solve its product issues with this new team, is poised to benefit from this growth as it continues to be the leading dating app in most markets.

Third, Match Group has a promising new application in Hinge that could drive revenue growth for years to come. The app is for more relationship-oriented daters and has grown in popularity in English-speaking markets. Management expects the app to generate around $300 million in revenue by 2022.

In the coming years, Hinge will expand into more international markets and focus on monetization, which should drive consistent revenue growth. Combine this with the steady growth at Tinder, and Match Group looks poised for double-digit revenue growth for the foreseeable future.

The stock is dirt cheap

Match Group shares are cheap right now, especially when you consider long-term growth opportunities. With a market cap of $11.6 billion and $641 million in operating income (I’m not using net income due to a 2022 one-off litigation payment), the stock is trading at just 18 earnings multiples, below the market’s average earnings multiple. from 20.

MTCH Operating Income (TTM) data through YCharts

For a company facing major near-term headwinds and strong industry tailwinds, this seems like a discount to shareholders with a time horizon of more than a few quarters. If you believe in the growth of the online dating market, now is the time to shut up, take the plunge and buy some Match Group shares.