Back in June, I told you that online dating is an incredibly powerful people-focused agent of change. Like Facebook, it's a "Social Disruptor" that's changing the way we live our lives even without a direct relation to cutting-edge technology or finance.
In fact, online dating is so powerful that I called it a "Disruptor of Disruptors," forcing change amongst those companies whose influence is upsetting an array of sectors, markets, and disciplines.
It's also a $2 billion industry.
That's why I predicted that Barry Diller's IAC/InterActiveCorp (Nasdaq: IACI) would spin out the Match Group of web-based dating services into an IPO.
Sure enough, next week is the Match.com IPO - shares will start trading on the Nasdaq under the symbol MTCH, and the company hopes to raise $433 million.
Is MTCH marriage material?
Maybe, but I've got a better way to play the company's IPO right now...
The Dating Business Is Booming
As you know, what thrills me about this "Social Disruptor" is the dating business. Match Group has a portfolio of 45 brands, including Match.com, Tinder, OKCupid, OurTime, BlackPeopleMeet, Meetic, and PlentyOfFish.
That's a lot of reach.
In fact, Match Group boasts 59 million active monthly users (including 4.7 million paid subscribers). Their dating services introduce people in 38 languages across an astounding 190 countries. I love that.
They're profitable, and they're growing their top and bottom lines.
In 2014, Match Group made $148.4 million on $888 million in revenue. They've increased revenue and net profits handsomely over the past three years.
But I'm just not sure the company won't have entanglements with its overlords at IAC (more on that in just a minute). I'm not sure their properties couldn't or wouldn't get hacked, or that some negative publicity from a hack (think AshleyMadison.com) wouldn't hit the stock hard.
My interest in the Match Group will be fairly high if the stock comes out on the lower end of its price range and doesn't get ahead of itself right out of the gate.
If the stock soars on its debut, and the market isn't marching higher to new highs, I definitely won't chase the stock.
But while I think the Match.com IPO is a smart move, there are a few issues that give me pause.
The Question of Independence Is Crucial
First of all, Match Group won't be completely independent.
InterActiveCorp will still own 86% of the new company after some 33.3 million shares are sold to the public. That number could rise to 38.3 million shares if underwriters pick up an additional 5 million shares, which they'll do if investors drive the stock price up.
Since IAC will own all the company's "B" shares, which have 10 votes per share, at the end of the day, they'll have 98% of all voting rights. So don't think that any outsider, any activist, any shareholder, or any executive is going to have a free run at the company.
Owning stock in a supposedly independent company that's anything but independent doesn't thrill me. That's especially true when the overlord of the property is Barry Diller, who moves around companies like he's playing corporate chess.
Of course, he's got plenty of incentive to grow earnings and profitability at the Match Group. After all, the Match Group contributes almost 33% of IAC's revenue. I'm just not sure there won't be some gaming going on when it comes to deals and loans between Match and IAC.
The Match.com IPO price has tentatively been set between $12 and $14. But with the roadshow for institutional investors beginning shortly, that price range can change depending on how receptive money managers are to the dating game.
At $12 a share, the company will raise $400 million. At $14, it will raise $466 million. And if all the shares head out the door at $14, the company will take in $536 million.
So, what's Match going to do with all that cash?
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Give it right back to IAC to pare down some of the $1.2 billion the company spent on acquisitions since 2009. So much for working capital.
That doesn't thrill me, either.
Here's How to Play the Match.com IPO
To me, the stock is worth a look on account of their vast array of properties and their ability to sell ads across all their platforms, increasingly via mobile, which is key.
But I'm not planning on getting married to the stock. I'll take profits if I get in and get a nice move and the stock slips back, for whatever reason.
In other words, it's a trading stock for me until I see how it handles a few quarters as a standalone company.
The better way to play Match Group is to buy IAC. After all, they will own 86% of Match.
I like buying IAC right here around $66. I'd average down and buy more at $60 if it gets there, because there's "support" there.
If the stock breaks below $60, it could go to $55 to $50 in a hurry. So I'd get out of my shares at $58 and see what happens next.
On the plus side, if Match takes off and IAC's other properties continue their growth trajectory - which collectively has been underwhelming, but moving higher nonetheless - I can see IAC getting back up to $80.
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About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.