A month has gone by since the last earnings report for Match Group (MTCH Quick QuoteMTCH - Free Report) . Shares have lost about 2.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Match Group due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Match Group Q2 Earnings and Revenues Improve Y/Y

Match Group reported second-quarter 2020 earnings of 51 cents per share, which improved 13% from year-ago quarter’s figure.

Revenues of $555.5 million increased 12% year over year courtesy of robust momentum at Tinder and solid performances of Hinge, Pairs and OkCupid. Excluding the effect of foreign exchange, the top line rose 14% year over year to $566.5 million. The upside was primarily driven by rise in average subscriber base.

Notably, activity across all brands has increased since the COVID-19 outbreak, especially among younger users and females. Moreover, the company witnessed rebound in propensity to pay driven by robust uptake of video-enabled services to boost engagement amid the coronavirus crisis-induced shelter-in-place guidelines.

The Zacks Consensus Estimate for earnings per share and revenues was pegged at 56 cents and $529 million, respectively.

This is the first quarter wherein Match Group reports as a fully independent public company. Notably, on Jun 30, 2020, a series of transactions led to the separation of the companies formerly known as Match Group, Inc. (referred to as “Former Match Group”) and IAC/InterActiveCorp (referred to as “Former IAC”).

The process resulted in two separate public companies — Match Group, which comprises the businesses of Former Match Group and certain financing subsidiaries previously owned by Former IAC, and IAC, consisting of Former IAC’s businesses other than Match Group (the “Separation”).

Following the separation, the operations of Former IAC businesses other than Match Group have been included as “discontinued operations.” Notably, Former Match Group incurred $7.5 million of separation costs in the second quarter, which have been included in discontinued operations.

Quarter Details

Average subscriber base increased 11% to 10.1 million and average revenue per user (ARPU) was flat year over year at 58 cents.

North America subscriber base climbed 4% to 4.7 million, while International advanced 17% to 5.4 million. Increase in subscriber base in North American and internationally was driven by growth in user base of Tinder, Hinge, OkCupid and Pairs.

North America ARPU increased 7% to 65 cents, while International ARPU declined 5% to 53 cents. North America ARPU was driven by increased purchases of à la carte features at Tinder, while International ARPU was affected by strength of the U.S. dollar compared with Euro and other currencies.

The company continues to expand operations across international markets. Post OkCupid success in India, the company is expecting to sustain momentum across Turkey, Germany and Israel. Also, launch of Hawaya — the company’s Muslim-focused app across 12 markets — primarily across the Middle East, Western Europe and Asia, remains notable. The company is witnessing strong user growth across these markets, which bodes well.

Moreover, robust Tinder average subscriber increased 18% year over year came to 6.2 million, which contributed to the quarterly results.

Direct revenues from Tinder increased 15% year over year. The company introduced Face-to-Face at Tinder, a one-to-one video chat functionality, in a bid to capitalize on growing clout of video dating amid coronavirus crisis-induced shelter-in-place guidelines.

Direct    revenues from non-Tinder brands collectively improved 9% on a year-over-year basis, driven    by 5% growth in ARPU, and 1% increase in average subscribers and contribution from non-subscriber one-to-many video revenues. Markedly, Hinge’s ARPU was up over 60% on a year-over-year basis in the second quarter.

Moreover, Match Group owned dating app — Plenty of Fish — rolled out a free live streaming feature called LIVE! to encourage members to practice social distancing while dating amid the coronavirus pandemic. Moreover, Hinge app has launched a ‘Dating from Home’ feature and a ‘Date Ready’ feature that enables live video dating. The company witnessed healthy adoption of video-enabled services in the second quarter.

Adjusted EBITDA was $227.8 million, up 13% year over year. Adjusted EBITDA margin expanded 30 basis points (bps) year over year to 41%.

Total operating costs and expenses, as a percentage of revenues, contracted 100 basis points (bps) on a year-over-year basis and came in at 65% in the reported quarter. This was driven by decline in selling and marketing expenses, and general and administrative expenses, and reduced spend on travel.

Operating income advanced 14% from the year-ago quarter’s tally to $195.6 million. Operating margin expanded 80 bps to 35%.

Balance Sheet & Cash Flow

As of Jun 30, 2020, Match Group had cash and cash equivalent balance of $129.3 million compared with $465.7 million as of Dec 31, 2019. As of Jun 30, 2020, the company had long-term debt of $3.53 billion compared with $2.89 billion as of Dec 31, 2019.

The company’s cash and debt balance as of Dec 31, 2019 has been adjusted for separation with IAC.

As of Jun 30, 2020, the company also reported $1.7 billion of exchangeable senior notes previously held by Former IAC. The company had an outstanding balance of $20 million as of Jun 30, 2020 of its $750 million of revolving credit facility. The amount was repaid in early July and the credit facility is undrawn as of Aug 4, 2020.   

For six months ended Jun 30, 2020, the company generated operating cash flow of $275.9 million compared with $205.2 million in the six-month period ended Jun 30, 2019. For six months ended Jun 30, 2020, free cash flow was $257.8 million compared with $184.4 million in the six-month period ended Jun 30, 2019.

During the reported quarter, the company repurchased 0.6 million shares worth $51.2 million at an average price of $80.61 per share.

Guidance

Match Group expects third-quarter revenues of at least $600 million. The Zacks Consensus Estimate is currently pegged at $564.4 million.

Adjusted EBITDA is anticipated in the range of $215-$225 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -20.18% due to these changes.

VGM Scores

At this time, Match Group has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Match Group has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.