Activist investor Starboard Value has acquired a 6.6% stake in online dating company Match Group. Starboard sent a letter Tuesday calling on the company to make improvements or consider going private. Match stock jumped on the news.
In the Tuesday letter to the company's board, Starboard Value Managing Member Jeffrey Smith called Match stock "deeply undervalued." Shares of Match Group have declined nearly 70% in the past four years since the company separated from its former parent company IAC. That's despite being what Starboard called the global leader in online dating.
"We are excited to own a large stake in an industry leader with significant room for improvement in operations, financial results, and capital allocation," Smith wrote. "We also believe that Match is a unique and highly valuable asset that may be well-suited to operate as a private company. It is incumbent upon Match's Board of Directors to determine the best path forward to create value, and we expect the board to be open-minded about these options."
On the stock market today, Match stock rallied more than 8% to 34.68 in morning trades. The gains put Match stock on pace for its best day since June of last year, according to Dow Jones Market Data. Still, Match Group shares have lost 6% this year compared to an 18% gain for the S&P 500.
Match Stock: Can Company Boost Growth?
Match Group includes the dating apps Tinder and Hinge, as well as Match.com and OkCupid. The stock has slumped amid slowing growth for its leading Tinder brand.
Starboard believes that Match Group can boost revenue and has room to improve its margins.
"As growth slows, companies should moderate expense growth such that margins improve — but Match has done the opposite," Smith wrote. "We believe Match has a continued runway for solid, sustainable revenue growth, and the flow-through from the true incremental margins of the business should drive meaningful margin improvement."
The letter encouraged the company to cut costs while also implementing a more aggressive capital return program.
A Match spokesperson told IBD in an email that the company is "relentlessly focused on executing our key initiatives, which include: driving growth at Tinder, continuing Hinge's impressive expansion, maintaining appropriate financial discipline, and returning capital to our shareholders."
Match "look(s) forward to continuing our open dialogue with all of our investors, including Starboard," the company statement added.
In January, activist investor Elliot Management also built a stake in Match Group.
Match stock holds a weak Relative Strength Rating of 38 out of a best possible 99, according to IBD Stock Checkup.
