IAC InterActive Corp. (NASDAQ:IACI) should see improved margins and revenue from its Match business as subscriber growth could be boosted by favorable secular trends and new monetizing opportunities.
Founded in 1993 and launched in 1995, Match.com is now one of the most recognized online properties in the world. Since its acquisition in June 1999 by IAC, Match has expanded its business portfolio to include PeopleMedia (2009), Singlesnet (2010), OkCupid (2011), Meetic (2011), Twoo (2013) and more. Based on comScore worldwide desktop Internet traffic data, these sites collectively comprise the most visited online dating platform in the world
Investors have been intrigued by this business given favorable secular trends, which many expect will support future subscriber growth. These include continued growth in the population of single adults, changing social perceptions related to online dating and greater Internet penetration globally particularly mobile, which enables more targeted, location-based functionality.
"We are bullish on Match and derive a $3.5b enterprise value for the Match segment. Given this valuation, the remainder of the business appears to be significantly undervalued," UBS analyst Eric Sheridan wrote in a note to clients.
Match is the second-largest segment at IAC by revenue (behind Search & Applications), comprising 26 percent of IAC's total sales in 2012. The segment's revenues have grown 78 percent over the past two years (29 percent in 2011 and 38 percent in 2012), largely driven by acquisitions.
In total, as of the second quarter 2013, Match featured 3.2 million subscribers, up 15 percent from last year. The business has three divisions – Core, Meetic, and Developing.
Out of the total subscribers, Core subscribers comprised 61 percent, Meetic accounted for 25 percent, and Developing subscribers represented 14 percent.
"We believe organic growth can continue at a low double-digit rate driven by the aforementioned secular growth driver! s (which we expect will translate to mid-single digit subscriber growth), as well as monetization initiatives to improve revenue per subscriber within specific Match brands," Sheridan noted.
Year-over-year Core subscriber growth has been relatively consistent in the high single-digit range over the past four quarters, and it is expected to moderate gradually into the mid-to-low single digit range over time.
In addition, Match Stir Events and Offline Game Nights provide additional revenue opportunities on top of recurring subscription fees.
Originally founded in 2001, Meetic is Europe's largest dating site, operating in 15 countries with approximately 25,000 new members joining every day. The company has been listed on the EURONEXT PARIS since 2005.
Meetic has now produced three consecutive quarters of subscriber growth. Adjusting for write-offs, the company has experienced two consecutive quarters of revenue growth, as well.
Management has since shifted its priorities for Meetic from "stabilize" to "grow" (in terms of subscribers, revenues and profits). Like Core Match, Meetic has introduced additional revenue streams to help achieve this goal. More specifically, in December 2012, Meetic introduced Meetic Soirees – group gatherings designed for singles similar to Match Stir Events.
"We expect that revenue per subscriber will begin to improve in 2014; however, over the next two years, we expect the majority of revenue growth will be driven by subscriber additions," Sheridan said.
IAC's Developing revenues are comprised of primarily ad-driven websites, including OkCupid, DateHookup, Kiss.com (formerly Singlesnet), and Twoo. Also in this bucket are Match's non-European international operations and Tinder.
While IAC plans to grow revenue from these sites, it views many of these properties as acquisition tools for its paid subscription offerings.
In the first two quarters of 2013, Developing revenues benefited from the addition of Twoo, though at a lo! wer reven! ue per user. Looking forward, organic revenue growth expected in the high-to-mid teens primarily driven by subscriber growth, but with improving revenue per subscriber trends along the way.
Moreover, Tinder, which has ranked among the top 25 iOS Social Networking apps in the U.S. since January, has yet to be monetized, and could offer meaningful upside in the future.
In addition to its secular revenue growth prospects, investors have also been attracted to Match's margin profile. Specifically, Match features higher operating income margins margins than the rest of IAC – 32 percent versus 16 percent for overall IAC in 2012.
"Looking forward, we believe margins for Match will continue to drift higher towards the 35% mark," Sheridan said.
The company should see a decline in marketing and acquisition costs over Match business. The heavy marketing spend till date to drive subscriber growth and to promote its new monetization initiatives could provide a source of leverage going forward as this spending rolls off.
Furthermore, if management's strategy around free-to-join sites is successful (i.e., using OkCupid and Tinder to funnel users towards paid sites), customer acquisition costs could be lower going forward.
"As IAC further integrates the businesses acquired within the Match portfolio, we believe there are opportunities to leverage R&D and G&A expenses across the platform globally," Sheridan added.
New monetization initiatives, a reduction in marketing spend & acquisition costs, and opportunities to leverage Match's global scale should lead to margin improvement over time.
Data from Best Stocks Now App The first time around with DLTR, I more than doubled my money. Then the shares started to cool off and I moved on. Well, it started heating up again earlier this year so I got back in and it's on the move once again. DLTR is a stock that I currently own in my conservative growth accounts. It is a $12 billion company -- a little, tiny, large-cap stock. By contrast WMT is a mega-cap stock at $244 billion.
Data from Best Stocks Now App Wal-Mart was once a Dollar Tree -- it was growing rapidly. And now you ask yourself 'Why didn't I get on the Wal-Mart bandwagon in the early days?' Well, I'm giving you all these stocks on a daily basis that are in the early days now. Too many people follow the rule of avoiding stocks that are hitting a new highs. In fact, just the other day someone asked me why I would buy a stock (like DLTR) that is just hitting new highs. Well, DLTR has been hitting new highs for the last 10 years. You'd never buy this stock if you followed that rule. I would rather own a stock that is hitting new highs than one that is going sideways.
Data from Best Stocks Now App Dollar Tree is currently trading at 17 times forward earnings, which is a slight discount to the market. It's expected to grow those earnings by 17%, so it has a PEG ratio of 1.01. All things equal, you should get 17% per year in returns on DLTR going forward. It's simple math, but that doesn't necessarily mean there's a guarantee. You still have to babysit that holding every day to make sure it's staying on track. Now every once in a while, the stock is going to be derailed a little bit. But as long as it stays on course, stay with it. You want big gains in the market. If it goes, of course, you sell. Dollar Tree is currently a stock that is exhibiting to those of Wal-Mart many years ago. Stock Chart So would I buy a stock that is hitting a new all-time high? So far we've discussed the performance and valuation of DLTR, but the last part is checking that stock chart. 
Courtesy of StockCharts.com Wednesday, DLTR broke out to a new all-time high. If the valuation justifies it, and in DLTR's case it does, I would absolutely buy a stock that's hitting a new high. So, it's your choice -- you could own a big, stodgy, old stock of yesteryear, or you could drop down a notch into the second or third tier and shop around the aisles of the stock market that still offer big potential. DLTR comes in at #83 out of 3,546 stocks. Clients of Gunderson Capital Management are currently long the stock. 
Data from Best Stocks Now App At the time of publication, Gunderson was long DLTR. Follow @billgunderson This article was written by an independent contributor, separate from TheStreet's regular news coverage.