“Fraud” isn’t a word investors want associated with a dating platform—especially in today’s regulatory environment and in a business for which established trust is a key competitive advantage.
Yet that is exactly what the Federal Trade Commission in a recent lawsuit alleges
Match Group Inc.
facilitated. As in every romantic spat, though, there are two sides to a story. In this case, it doesn’t seem much heartache is in store for Match.
The suit, filed last week, involves claims dating back to a 2017 investigation by the FTC in which no resolution was reached. The FTC alleges, among other things, that Match induced nonpaying users to subscribe to its Match.com app based on “fake love advertisements” identified as potentially fraudulent.
Suits against other dating platforms brought by the FTC over the past several years have resulted in settlements requiring companies to change business practices, enhance security and provide some monetary compensation to deceived consumers.
Match’s stock, which is up 73% in the year to date, has fallen 12% over the past month, in part due to uncertainty around the lawsuit. Since the FTC’s claims date back two years, it doesn’t appear that this case will resolve itself soon. The market’s reaction may therefore be excessive.
Most of the users the FTC has categorized as “fraudulent” are actually outside spammers or bots, according to Match. Moreover, none of the practices the FTC is alleging remain in place today, according to the company. Investors are anxious these days about regulatory scrutiny of tech companies that fail to protect users—
all come to mind—but Match says it has long had effective algorithms and safety warnings in place to do just that. Since at least early 2015, for example, Match.com users have been required to accept a safety pledge prior to communicating with others on the platform, according to the company.
Perhaps most important, the FTC’s claims are specific to Match.com, which Macquarie Group estimates will account for just 15% of Match’s estimated $2.1 billion in revenue in 2019. Match’s stock is currently trading on the success of its leading app Tinder which, unlike Match.com, doesn’t require a subscription to communicate with other users.
It also should be noted that Match has been willing to engage in legal tussles. Match also is currently involved in an intellectual-property battle with competitor Bumble, as well as multiple suits against a Tinder co-founder.
Ultimately, legal peril and the ensuing stock fluctuations may just be something Match investors have to endure. But much like a quirk (or two) in a preferred mate, the benefits tend to outweigh the risks.
Write to Laura Forman at firstname.lastname@example.org
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