Activists have fallen hard for dating apps. Investors shouldn’t

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Activist investors are swiping right on dating apps. But a shift in dating culture, along with concerns over safety and romance scams, mean they may struggle to convince the broader market to do the same.

Starboard Value revealed in July that it had built a 6.6 per cent position in Match Group. It is the third activist to take aim at the owner of Tinder and Hinge. Elliott Investment Management amassed a stake — of about 4.5 per cent according to S&P Global Market Intelligence — earlier this year and got Match to add two new board members and sign an information-sharing pact. Anson Funds Management, a smaller fund, also has a stake.

Activists have good reasons to push for change. Dating apps enjoyed a surge in popularity during Covid-19 as lonely singletons used them to stay connected. But Match — along with rival Bumble — have struggled with a post-pandemic slowdown in growth. 

Match’s paying user base — which jumped from 13mn at the start of 2020 to a high of 16.5mn by the third quarter of 2022 — has shrunk in each of the past seven quarters year on year. Shares have plummeted. At its 2021 peak, Match was worth almost $50bn. Its value now stands at just $9.3bn. Bumble, which went public in 2021, is down 90 per cent since its IPO.

Tinder is Match’s biggest problem. The prized app, which pioneered the swipe feature that has made it a fixture of pop culture conversations, is Match’s biggest business, generating almost $2bn — or 57 per cent of the group’s total revenue last year. But younger people are defecting, looking for more serious relationships rather than the casual hook-ups that Tinder is known for. The result: Tinder’s paying users dropped by another 8 per cent to 9.6mn during the second quarter.

Match still has some of the biggest and most recognisable brands in online dating. It remains highly cash-generative, with $829mn in free cash flow last year. Starboard thinks there is an upside if Match can turn around Tinder, cut costs and ramp up buybacks. The activist sees potential in Hinge, a fast-growing app for people looking for relationships. However, it also urged Match to consider selling itself if it is unable to revitalise the business.

Wall Street still needs convincing. The economics of running a dating app are tough, relying on constantly upselling lonely hearts to a paid-for product and replacing those coupling up. Like any courtship, wooing investors will take time and effort. Activists have their work cut out.

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