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Match Group (MTCH) Q2 Earnings Preview: What to Expect?

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Match Group, Inc. (MTCH - Free Report) is set to report second-quarter 2016 earnings results after the closing bell on Jul 26.

The company went public last November, and in its first earnings announcement as a publicly-traded company, Match Group missed earnings estimates by 5.3%. The succeeding quarter was better, with the company’s earnings beating estimates by 20%.

Let's see how things are shaping up for its third earnings report as a public company.

Key Factors Influencing Q2 Results

Match Group is the world’s foremost provider of dating products, and operates a portfolio of over 45 brands. Three of its biggest and best known brands are Match.com, OkCupid and Tinder. The company’s reputation, established user base and size should prove to be favorable in the upcoming earnings.

About 60% of the company’s revenues come directly from users of its dating services in North America, mostly in the form of membership subscriptions. Most of its users connect from mobile devices, where conversion to paid members is also higher. Last quarter, its dating revenues rose 24%, which drove a 21% increase in the top line. This momentum bodes well for the company’s top-line growth in the quarter under review.

Furthermore, a big part of Match Group's growth comes from its acquisitions. Over the past six years, Match Group bought 25 companies for an aggregate of about $1.3 billion. Recently, the company acquired the online dating service, Plenty of Fish, which will further add to its revenues in the quarter under review.

Match Group has been making profits over the past three years and has been seeing top-line growth as well. The company is currently enjoying strong growth, driven by robust growth momentum at Tinder, and solid performances from Meetic and Match and recently acquired PlentyOfFish.

However, the company is vulnerable to the cannibalization of users and revenues across its competing platforms. In fact, its average revenue per paying user fell sharply (down 10% year over year), reflecting the shift of its focus toward lower-paying brands such as Tinder and OkCupid. These factors might affect the company’s top line this quarter too.

The company is struggling with monetization of its services in the face of intensifying competition in the online dating space with apps like Bumble, Hinge and Coffee Meets Bagel. This might just prove detrimental to the company’s top line growth in coming quarters.

Earnings Whispers

Our proven model does not conclusively show that Match Group will beat earnings in the second quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Earnings ESP for the stock currently stands at 0.00%. This is because both the Zacks Consensus Estimate and the Most Accurate estimate are pegged at 13 cents.

Zacks Rank: Although Match Group's Zacks Rank #2 increases the predictive power of ESP, its 0.00% ESP makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

MATCH GROUP INC Price and EPS Surprise

MATCH GROUP INC Price and EPS Surprise | MATCH GROUP INC Quote

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

The Earnings ESP for Potlatch Corp. (PCH - Free Report) is +42.86% and it carries a Zacks Rank #2. The company is expected to release its quarterly results on Jul 26.

AK Steel Holding Corp. has an Earnings ESP of +100.00% and a Zacks Rank #2. The company will report results on Jul 26.

Landec Corp. has an Earnings ESP of +6.67% and a Zacks Rank #3. The company is expected to release earnings results on Jul 26.

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