Markman Capital Insight

Buy Match To Exploit Apple’s Outdated Payment System

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Since 2009, executives at Apple (AAPL) have ruled over the firm’s mobile operating system with an iron first. They made all of the rules, mostly to their benefit. That is changing.

A Dutch antitrust authority ruled on Friday that Apple must allow makers of dating applications to use alternative payments or face of weekly fine of up $5.6 million, up to $56.5 million in total. 

Investors should consider buying Match Group (MTCH).

Match executives bill the company as the world’s leading provider of dating applications. With products in 40 languages and availability in 190 countries, its portfolio is unmatched. In addition to its very popular Tinder, Match’s 45 distinct properties include Hinge, Match, Plenty of Fish, Meetic, OK Cupid, Our Time and Pairs.

These applications reach everyone from same-sex millennials swiping for a date, to middle-aged divorcees seeking new relationships, to older singles in Japan, Korea and Taiwan looking for love. Match properties touch ever demographic and most geographies,

A filing at the Securities and Exchange Commission in June revealed Match had 15.1 million paying subscribers, up 15% from a year ago. Annualized revenue was $2.7 billion and profits reached $978 million.

Its Tinder mobile app is both the most downloaded dating app in the world and the top grossing, according to App Annie, a mobile application data analytics firm.

Top gross is an important metric. It entails total revenue from new subscriptions and sales made inside the application. Those small add-ons purchases can make a big difference for dating apps.

Analysts at App Annie found that customers spent $2.3 billion in 2019 buying such digital delights as the ability to secretly discover who has liked their photos. And many dating apps also charge users a small fee to hide profile details like age and location, too. There is no limit to the number and types of in-app purchases available to developers.

Apple’s stranglehold on the ecosystem began to slip in September when a U.S. District judge gave developers the option of bypassing its payment system.

Judge Yvonne Gonzales Rogers actually sided with Apple on 9 of the 10 issues being litigated with Epic, maker of the wildly popular Fortnite video game platform. She declared Apple did not hold a monopoly position in mobile games. Rather she decided that the iPhone maker was merely an extremely successful company operating in one aspect of the digital game marketplace. She also ruled that Apple was not obligated to allow Epic to develop a separate store within the operating system. 

However, Judge Gonzales did rule Apple violated California law by barring Epic from displaying in-app links to an alternative payment system. That ruling set up the potential for developers to bypass the App Store for these lucrative payments, and the 30% commission Apple routinely claims for processing.

The ruling in the Netherlands on Friday sets that process into motion. According to a Reuters report, the Cupertino, Calif.-based company must makes changes by Jan. 15 to allow third party payment systems, or face weekly fines. It’s a policy Match lawyers have been litigating since 2020.  

Bloomberg reported in 2019 that Match’s Android customers were being directed to enter payments details directly at the Match Group website, avoiding the Google Play store fee. Yet Apple customers continued to pay through the App Store.

Like Netflix (NFLX), Alphabet’s (GOOGL)YouTube, and Spotify (SPOT), Match is a mobile gatekeeper. Its customer trust the platform. They will gladly sign up at the Match website to maintain service. It means the company can experiment with new business models that avoid the 30% fees levied by Apple. Those revenues flow straight to the bottom line.

Match shares closed on Thursday at $133.44. The stock trades at 72.6x forward earnings, and 13.1x sales. Market capitalization has fallen to $37.2 billion, following a share price decline of 11% in 2021.

Shares can easily trade to $190 during the next 12 months on the Apple news alone, a gain of 42% from current levels.   

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