Looking for Motley Fool’s “Is This New IPO Stock the Next 100-Bagger?”

By Travis Johnson, Stock Gumshoe, April 19, 2016

I’m not writing much this week, but thought I’d get a quick teaser answer out for those of you who’ve been asking…

…the Motley Fool started hinting about their new Motley Fool Stock Advisor recommendation from David Gardner a few days ago, and they haven’t done a lot of hinting of late for those picks so my ears did perk up a little. The Thinkolator does love a challenge, but it requires a bit of something to chew on (more than just the “Fool just doubled down” ads we saw a few weeks ago — our readers discussed that and thought it was probably Illumina, but I can’t confirm that because the ads didn’t include any specific hints).

This time, though, we’ve got a new recommendation and some clues…

“David issued a rare ‘buy’ alert on a stock that just recently held its IPO and went public.

“Shares of this company have only been available to the public for a few months, and David believes NOW is the perfect time to make a move on this stock.”

So that’s something… and it’s a fairly small universe, since there haven’t been much more than 50 IPOs over the past six months or so. Do we get enough clues to find a definitive answer? Let’s see…

More drumroll…

“In Stock Advisor’s 14 year history, there have been only 4 occasions David Gardner has recommended shares of company that held its IPO within 5 months of his ‘buy’ alert.”

And, as the ad is quick to tell us, one of those occasions was Amazon.com (AMZN) almost 20 years ago, which would certainly help to make up for any other mistakes you might have made along the way — AMZN shares, had you bought and held when David Gardner first recommended them, would now be up by about 20,000% (assuming you had the stomach to hold it during some washouts, including that 90% drop in the dot com crash — the Gardner brothers are consistent in their dedication to buy and hold of their best ideas, but not all their readers can hold with that kind of discipline).

More from the ad:

“Which brings me back to the newly IPO’d company David recommended Friday afternoon – a company with strikingly similar traits to what made David first issue his Amazon call.

“First, with a market cap of less than $2.5 billion, this fresh IPO stock is essentially still a small-cap.

“Like Amazon, this company thrives off the growth of its “virtual community.”

“Also like Amazon, this company has been growing like gangbusters!

“The company has grown the size of its community by 63% annually for the past 4 years – giving it more than double the market share of its next closest competitor.

“Even more exciting, management still believes they’ve only captured 11% of the potential market for their product.

“That’s the type of growth and market opportunity that gets David Gardner’s heart pumping.”

So who is it? Thinkolator sez this must be… Match Group (MTCH), owner of a bevy of dating sites, including giant Match.com and millennial favorite Tinder. Match was partially IPO’d out of Barry Diller’s IAC/Interactive Group (IAC) late last year in an attempt to get a better valuation for this fastest growing business in the IAC family (IAC still owns a controlling stake).

How is it a match? Well, the market cap was recently below $2.5 billion (it’s slightly over that now), and they did grow their user base by 63% over four years — though from what I read that was total growth for the full period, not annualized. And they do believe that their addressable market is 511 million single internet users in the countries where they provide services, and they currently have 59 million monthly active users… which just about 11%.

It is certainly a “network effect” stock — meaning that it builds upon itself, each new user who tries one of Match’s dating services or apps adds to the appeal of that service. No one wants to use a dating app that doesn’t have lots of potential dates on the other side of your future potential relationship.

Match.com is the biggest player in the business, and has grown very nicely, but they’ve also bought or started dozens of other dating services, including OKCupid and OurTime as well as the most hotly discussed growth engine right now, Tinder, and they’re not done trying to “sew up” the market, they just bought PlentyOfFish around the time of the IPO, too. Much of the argument for buying MTCH is that Tinder is going to continue to grow, and that the valuable location-aware and repeat business data from Tinder will create a serious revenue engine above and beyond the “paid subscriber” model that all dating sites use.

Partly, I think, the enthusiasm comes from the fact that Tinder is more casual — looking for a date or a hot night on the town or a new friend as much as looking for a “relationship”. Dating sites often don’t get serious premium valuations, in my limited experience, because customer acquisition is expensive and customers who do find long-term relationships tend to be lost as customers (at least for a few years).

Will it work out? I have no idea… and I’m going back to vacationing for a few days, but I’ll leave this one for you to chew on — the next quarterly earnings report will come out in about two weeks, and as of the last quarter they had earnings of 65 cents per share for the trailing fiscal year, a drop from 88 cents in the prior year.

That means the stock has a trailing PE of about 17 and didn’t grow last year… so buying the stock now would probably be based on a qualitative assessment that you’re convinced they will grow earnings this year or in the coming few years — or, at least, that they’ll invest in growing their network and will build a plan to “monetize” that network more efficiently within the next few years. If last year was an anomaly and the prior year’s 88 cents is likely to be what they hit in the future (I have no idea), then the valuation is much more attractive at 13 times earnings.

I’m probably a little too cautious about this one, because a few years ago I found myself sucked into what turned out to be (so far, at least) a value trap when I fell for Spark Networks (LOV), the owner of JDate and Christian Mingle and some other niche dating sites, partly because of their sticky, affiliate group-driven low-cost customer acquisition model. I didn’t buy that one and don’t own it, but I did feature it for the Irregulars after it was presented at a value investing conference I attended… and it’s gone down ever since. That doesn’t mean Match will follow that path, when combined with their 40+ other dating networks they certainly have a larger market and have been strong marketers as they’ve tried to consolidate the industry, but it does give me pause.

So there you have it — it’s an old firm, with some strong brands, and is newly quasi-independent and has grown its user base over the years… but it’s not currently growing earnings and reports their second quarter post-IPO in about two weeks. This is one you’ll have to dig in and understand for yourself, the financials don’t either easily justify an investment or rule one out, so it’s all about understanding the business and their potential and seeing if you agree with David Gardner that their “first mover” status means they’ll continue to lead a growing market.

Thoughts? Share ’em below, that’s what our friendly little comment box is for. Thanks!


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Gr8Full!
Member

$MTCH, no position – Thanks you Travis and enjoy the rest of your vacy. 🙂
Best2You-Ben

osgo
Member

Nearly 19yr INFOSEC Vet here, been in the trenches…ridden 4 Start-ups, one of ’em was bought by Cisco and I ca$hed out… I’m one of the authors of the Cisco MARS DB…

MTCH owns the space…E-Harmony is still private, and the kids/Millennials won’t fill out 10+ pages of psych. questions E-Harmony *insists* on to ensure users aren’t NuckingFutzo.

If you want in the dating space, especially considering burgeoning demographics…MTCH is about it – long term play…and they could always be bought by bigger fish, no pun intended.

Gr8Full!
Member

$MTCH Thanks osgo, Happy 420 🙂

Karl
Guest
Karl

I’m thinking Match are more likely to swallow up some more smaller fish. Like Christian Mingle.

AJ
Guest
AJ

What’s up with the class action suit against MTCH?

jim coleman
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jim coleman

Any ideas which company KERRISDALE CPITAL raised $100 million to SHORT????

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backoffice
Member

I called them up and was told it was Illumina

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Mike Colligan
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Mike Colligan

Cant be ILMN because they have been around over 10 YRS! Newer IPO!

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jim coleman
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jim coleman

very interesting..thanks

Chris
Guest
Chris

Illumina or Match is the stock Motley is hinting at?

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Todd
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Todd

Interesting pick, but they do have a LOT of debt.

nshyam
Member
nshyam

Nice sleuthing. Can someone tease out Travis’s exclusive comments to paid members? 🙂 I bought in with a small position (about 1% of my portfolio) in mtch at $11.50

Gr8Full!
Member

By gosh, nshyam, an Irregualr membership is 13 1/2 cents per day; $6/mo, 15/qtr, 49/yr. Best inveetment EVER, imho. Have an awesome eternity! – Benjammin’

frank murray
Guest

Although it doesn’t fit the teaser criteria, a better potential stock might be Etsy. Similar to Amazon, sells online and has excellent seller and buyer retention and just going international

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nshyam
Member
nshyam

Agree about the fees.

Paul
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Paul

MF re-recommended TRIP

Steve Lee
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Steve Lee

I think they are pushing Shopify SHOP
SHOP has a business format like Alibaba.

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Phil Hood
Guest

Don’t like dating sites. Obvious growth potential but also huge churn potential. I’d like to know the average life of a Match membership. Is it a year? Three months? It’s got problems. Dating is local for the most part so it’s not really a social app. And people are “in the market” only for a certain part of their life (maybe Tinder has an advantage here). So after your customer lands a significant other they stop using your product. I think it resembles cable or satellite in that you are forever spending gobs on customer acquisition. I also wonder about… Read more »

Christopher D Martinez
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Christopher D Martinez

Match group will never be like Amazon…. Give me a break

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AlbertAFT
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AlbertAFT

They are definitely hyping Shopify (SHOP) as the next Amazon, and possibly for good reason. It may very well be the next Amazon in my opinion. SHOP appears to be unstoppable and God only knows how high the price will go. $500 + a share? Who knows…

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