Online Dating: Swipe Right for Love and Money

02/16/2016 7:00 am EST

Focus: STOCKS

Mary-Lynn Cesar of Kapitall.com highlights the rapid growth rate of the online dating industry—citing several stocks for support—and points out that it is also gaining in popularity overseas, specifically in China. However, Mary-Lynn also notes that concerns remain over the industry's ability to generate a profit.

Online dating is going mainstream. This week—just in time for Valentine's Day—the Pew Research Center released a new study on online dating and found that 15% of American adults have used online dating sites and/or mobile dating apps, up from 11% in 2013. The study is based on a survey of 2,000 US adults that was conducted in summer 2015.

And the rapid growth in online dating is as much about money as it is love.

Young adults are leading the surge in online dating, with usage among 18- to 24-year-olds almost tripling since Pew's 2013 online dating study. Call it the Tinder factor: 22% of young adults have used a mobile dating app, compared to just 5% just two years earlier. Aaron Smith, author of the report, told NPR that mobile apps' appeal lies in their simplicity and "game-ified way of engaging with other people." Crafting snappy blurbs and swiping right or left are a lot easier and less time-consuming than writing a painstakingly detailed profile for a traditional dating site like OkCupid.

But young people aren't the only ones in pursuit of the digital get down. The study reveals that 55- to 64-year-olds are also flocking to online dating, with 12% of older adults having tried it, double the 6% reported back in 2013.

Online dating is a big market. Here in the US, the industry generates approximately $2 billion in revenue each year and expanded at an annual rate of 5% between 2010 and 2015. This helps explain why IAC/InterActiveCorp (IACI) decided to spin-off its online dating assets last year with the Match Group (MTCH) IPO. Match, whose portfolio includes OkCupid, Tinder, and Match.com, went public in November at $12 a share, and although the stock is trading below its IPO price, it currently boasts a market cap of $2.3 billion.

Online dating is also gaining traction overseas, most notably in China, where revenue is estimated to total $1.6 billion for the year by the end of 2016. Investors are interested in the market's potential: last year, German media firm Bertelsmann invested $5 million in dating app Tantan, while Sequoia Capital and Vertex Venture Holdings put $20.5 million into Qingchifan, yet another app.

Still, despite the increasing popularity of online dating, concerns remain over the industry's ability to generate a profit. The biggest issue is that, when the apps work and people find partners, they stop using the service. As a result, dating apps must be adept at acquiring new customers. Unfortunately, as the Wall Street Journal points out, most dating apps don't experience the same meteoric rise that Grindr and Tinder have and users generally don't recommend the latest apps to their friends. To read the entire article click here…

By Mary-Lynn Cesar of Kapitall.com

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